FBR head says Rs3.5 trillion stuck in pending tax cases

ISLAMABAD: The Federal Board of Revenue (FBR) on Wednesday said tax revenue of Rs3.5 trillion was stuck up in litigations on account of different cases and appeals before the higher judiciary.

The FBR chairman Mohammad Ashfaque told the National Assembly’s standing committee on Finance was a major challenge for them as they were trying to make the procedure short.

“All the cases have been taken to the court under article 199 and there are different stages for pending cases till landing before the Supreme Court of Pakistan.” he said, adding that FBR had introduced Alternate Dispute Resolution (ADRs), which failed to bring desired results.

The finance committee held its meeting under the chairmanship of PTI MNA Faiz Ullah Kamoka that cleared Fiscal Responsibility and Debt Limitation (FRDL) Amendments Bill for bringing down debt to GDP ratio at 60 percent over the next six years starting from 2020-21.

Ashfaque informed that they could not justify doling out exemptions to different sectors in front of multilateral donors and added that the sales tax exemptions were withdrawn to overhaul the system by removing distortions.

The NA panel approved the FRDL Amendment Bill, 2021, and the representative of Finance Division briefed the committee FRDL Act aimed at reducing of federal fiscal deficit and ratio of public debt to gross domestic product to a prudent level by effective public debt management.

The proposed amendments would strengthen the debt office with the mandate and resources for effective planning and execution of debt management functions of the government, they stated.

FBR chairman said the bill proposed to bring overall debt to GDP ratio to 60 percent in six years after financial year 2020-21, adding, target to decrease debt to GDP ratio by 2 percent annually and outstanding guarantees to 10 percent of GDP.

Faiz Ullah Kamoka said there would be room for loans in case of increase in expenditure so that the system could continue to function. After detailed discussion and deliberations, the committee unanimously recommended approving the bill, he informed.

While briefing on the issues being faced by different sectors of the country due to heavy taxation, the FBR chairman apprised there was no change in taxation of Jewelers in the Income Tax Ordinance, 2001.

He added that the sector continued to avail concessionary reduced rate of withholding tax on import of unwrought or semi-manufactured gold at 1 percent, whereas, other industrial raw materials were generally subject to tax at import stage at 2 percent.

However, he continued, in the Finance (Supplementary) Act, 2022, the sales tax exemption and reduced rates on import and local sales of articles of jewelry had been withdrawn and the articles were chargeable to sales tax at standard rate of 17 percent.

He apprised that the exemption was withdrawn under International Monetary Fund (IMF) program to remove economic distortions created by tax exemptions and reduced rates. Monetary gold, however, was still exempted at both import and local sales stages, he informed, adding that the sector was also exempted from levy of value addition tax at 3 percent at import stage.

During the course of the discussion, the vice-chairman of Jewelers Association, said the sale of jewelry was liable to tax at 1.5 percent on gold, 3 percent on making and 2 percent on value of diamonds.

However, the Finance (Supplementary) Bill proposes to increase it to normal rates i.e., 17 percent.

He informed out of approximately 36,000 jewelers, only 50 plus were registered with sales tax, and such a measure would result in complete closure of the documented sector and fall in revenue, he feared.

He shared that in the history, even when reduce rate was not there, the exemption was available up to 90 percent of the value. Similarly, jewelry across the globe is taxed at reduced rates i.e., the rate of VAT on jewelry is 3 percent in India.

He further informed the sales tax registered jewelers had to pay withholding tax at 9 percent as all the suppliers in the supply chain were un-registered and out of tax net.

The committee directed the vice chairman to make proposals for viable solutions to register the jewelers with sales tax, asked the FBR to reduce the withholding tax to 0.25 percent, and also directed the ministry of Commerce to revise the import policy to ease gold import.

It also deferred the remaining government bills such as the State-owned Enterprises (Governance and Operations) Bill, 2021, COVID-19 (Prevention of Smuggling) Bill, 2020 (Ordinance No. III of 2020), and The Tax Law (Third Amendment) Bill, 2021 (Ordinance No. XXII of 2021) till its next meeting.

The committee also put off the Calling Attention Notice No. 3, regarding impact of Covid-19 on the business community across the country, especially Karachi and Hyderabad, moved by Engr. Sabir Hussain Kaim Khani, MNA, on unavailability of the mover.