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Thursday March 28, 2024

Govt, FPCCI negotiating two percent cut in sales tax

By Shahnawaz Akhter
April 21, 2017

KARACHI: The government and business community are discussing to reduce sales tax by two percent to 15 percent from the existing 17 percent to provide relief to the masses and bring more industrial units into the tax net, sources in the Federal Board of Revenue (FBR) said on Thursday.

After agreement on the issue, the government would incorporate the reduced rate of sales tax in the Finance Bill 2017 for formal approval from the parliament, they added. The sources said the ministry of finance, FBR and the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) discussed the issue in detail.  The FPCCI had proposed reduction in the sales tax to 14 percent. However, on the argument of the FBR regarding impact of tax collection the FPCCI agreed on 15 percent. 

An official at the FBR said the issue is still in discussion and soon will be finalised. Since the upcoming budget would be presented in the election year; therefore, the ruling party is eager to provide relief to the masses, he added.

Sources in the FPCCI said the government has also been proposed to eliminate evasion in sales tax regime, which has been done through bogus input-output adjustments.

In this regard, it was proposed the government should bring down the sales tax to a single-digit and prohibit any adjustment and refund claims. It is also proposed to levy
one percent value addition tax on every stage of supply chain.

Two years ago, the FPCCI had presented its shadow budget and urged the government to reduce the sales tax rate. The FPCCI, giving rationale of the reduced sales tax rate, argued that the reduction in the sales tax rate would accelerate economic activities and improve efficiencies. 

The reduction in the sales tax rate will enlarge the size of consumer markets and the government earnings will definitely increase. It has been identified that the FBR has indicated less than five percent of the effective tax rate of sales tax, which indicated that 71 percent of the total collection of sales tax has to pay back in account of input adjustment and refund claims.

The FPCCI sources said the FBR’s reservation that the reduction of sales tax rate would impact revenue collection is not correct. In fact, the collection would increase with the reduced tax rate, they said, adding, additional taxes would be collected by amending the rate, while the remaining incremental tax revenue will be collected through additional sales volume because of the reduction in market price.