ISLAMABAD: The government is all set to keep the standard rate of General Sales Tax (GST) unchanged at 18 percent for the upcoming budget 2023-24.
The rate reduction of GST is not on the cards rather the government is making plans to jack up rates of withholding taxes where applicable and possessed the potential to increase tax revenues. The government also considered amendments for retailers to bring millions into the tax net. In the past, all such schemes for luring retailers have miserably failed in the last two to three decades.
Different proposals are under consideration for exploring the option of slapping Minimum Asset Tax (MAT) on both moveable and immovable assets but the FBR authorities have been advised to get the endorsement of the constitutionality of the proposed taxation measures to avoid landing into litigations. The government is also vying for its options for moving ahead with documentation of the property sector for achieving a highly ambitious tax collection target of Rs 9 to Rs 9.2 trillion for the upcoming budget.
According to an official statement issued by Finance Ministry after the meeting that Federal Minister for Finance and Revenue Senator Mohammad Ishaq Dar chaired a meeting on budgetary proposals presented by FBR, at Finance Division on Monday. Minister for States for Finance and Revenue Dr Ayesha Ghous Pasha, SAPM on Finance Tariq Bajwa, SAPM on Revenue Tariq Mehmood Pasha, Chairman RRMC Ashfaq Yousuf Tola, Secretary Finance, Chairman FBR, and other senior officers from Finance Division and FBR attended the meeting.
Chairman FBR Asim Ahmad gave a detailed presentation on budgetary proposals for the Federal Budget 2023-24 which were discussed in detail. Finance Minister Senator Mohammad Ishaq Dar reiterated the resolve of the government to provide a business and people-friendly budget. He added that the government is committed to ensuring that the new budget brings economic prosperity for all sectors of the economy and ensures the distribution of resources equitably among various sectors, the official statement concluded.
The meeting discussed some taxation proposals including a measure to tax the exporters that hold back foreign exchange in anticipation of the devaluation of the rupees against other international currencies and resultantly earning a gain on their foreign exchange. Such gain can be computed as the difference between the foreign currency conversion rate prevailing after a specified number of days of export and the conversion rate on the date when the foreign currency is actually brought to Pakistan. Since the FBR is not privy to these details, it is recommended that the task to collect this levy be entrusted to the State Bank of Pakistan.
For promoting documentation in exports through the minimum tax regime, Pakistan’s economy heavily relies on exports, and as such, the government has been taking measures to promote and incentivize them. One such measure is the FTR regime for exporters. It is recommended that the FTR scheme for exporters should be shifted to a Minimum Tax Regime (MTR) scheme in the first phase so as to encourage documentation. In the next phase, exporters should be allowed to avail 100 percent tax credit subject to certain conditions, similar to the provisions under the law for Non-Profit Organizations. To avail this benefit, exporters must maintain proper documentation and comply with relevant government regulations. The proposed MTR scheme can promote documentation in exports and incentivize exporters to maintain proper financial statements, ultimately leading to a more transparent and inclusive economy. This scheme can also help the government increase tax revenue, bringing in much-needed funds towards public services and development projects. For group relief, the relief from multiple taxes on inter-company dividends was introduced via Finance Act 2008 through the introduction of clause 103A in Part I of the Second Schedule to the Ordinance. Subsequently, via Finance Act 2016, this relief was abruptly removed for companies eligible under section 59B of the Ordinance. It was reinstated again in 2019 through the introduction of clause 103C in Part I of the Second Schedule of the Ordinance. In 2021, via Income Tax (Second Amendment) Ordinance 2021, clause 103C of Part I of the Second Schedule, it was once again removed from the statute under the mistaken interpretation that it is an exemption. The minimum tax under section 113 is applicable at 1.25 percent of turnover, however, a reduced rate of 0.25 percent is also prescribed for certain cases. The existing return filing form is extremely cumbersome and filing it is an uphill task for retailers.
It is recommended that multiple rates of tax under sections 236G, 236H, 153 and 113 for different sectors should be abolished. Section 236G should be made applicable on the sale of any goods by manufacturer / commercial importers at 1 percent, which shall be the minimum tax for the person purchasing the goods from them. The rate of 1 percent shall be applicable if the buyer is active for both income tax and sales tax (other than exempt supplies), otherwise 4 percent.
The manufacturer / commercial importer shall provide complete details of the buyer (Name / CNIC / NTN / Address) in its sales tax return as well as withholding statement otherwise proportionate income tax and input tax shall be disallowed to such manufacturers / commercial importers. Likewise, wholesalers/distributors/dealers should also provide complete details of their buyers (retailers) in their sales tax return and withholding statements they will file under section 236H otherwise proportionate income tax and input tax shall be disallowed. Section 21(q) and 108B of the Ordinance and Section 8(1)(m) of STA must be amended for that purpose to only disallow expense/input adjustment or addition of margin in case where the person does not provide the details of the unregistered customer in the manner discussed above.
On the sale of goods by a wholesaler/dealer/distributor (who is active for both income tax and sales tax), it’s withholding on sale under section 153 shall be at a reduced rate of 0.5 percent which is adjustable. The rate of minimum tax under section 113 shall be standard at 1.25 percent. On the above lines, section 236H of the Ordinance should be applicable on the sale of any type of goods to Tier-1 retailers at 3 percent, which shall be the minimum tax (it is assumed that retailers earn at least 10 percent of net profit). Tier-1 retailers should be active / integrated for both income tax and sales tax purposes; otherwise withholding under section 236H at 6 percent would apply.
The minimum Tax under section 113 should be at the standard rate of 1.25 percent. Manufacturers/ Commercial importers, though not directly selling goods to retailers, are aware of the trade volume of retailers through the supply chain system. Such manufacturers/importers may be incentivized in some manner by the tax credit if they provide such details. In order to bring millions of retailers into the tax net, it is proposed that for retailers other than Tier-1, collection of income tax/sales tax with electricity bills proposed through Finance Act 2022 should be revived with appropriate amendments whereby the amount of sales tax/income tax should not exceed the amount of electricity bill (other than Fuel Adjustment Charges).
For retailers operating in malls where one electricity bill is raised against a single meter in the name of the landlord, he should be required to provide a statement on a monthly basis whereby the details of the bill/ tax allocated to the retailer are provided to FBR to identify Tier 1 and non-Tier retailers or service providers. Simplified returns and filings should be introduced for retailers. Abolishment of multiple rates would reduce complexity and bring rationalization. Moreover, the revision in rates of Advance Tax collection would reflect the margin of the wholesaler/dealer/distributor and retailers. Higher rates for unregistered persons would assist in broadening the tax base and would also assist the tax machinery to rope such persons under the tax net.
