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FEDERAL BUDGET 2017-18: Higher tax is the mother of economic ills

The major concern of the trade and industry is the rising rate of inflation and what they called the complexities in the tax collection system and the higher rate of sales tax which is 17 percent in the current fiscal year.

The trade and industry has urged the Federal Board of Revenue (FBR) to bring down sales tax rate to 14 percent in the budget 2017-18 against the existing flat rate of 17 percent.

The Federation of Pakistan Chamber of Commerce and Industry (FPCCI) in its budget recommendation of next fiscal year said that prevailing rate of sales tax at 17 percent in Pakistan is too high, as compared to other countries in the region.

The business community pleaded that the high rate is the root cause of tax evasion, corruption, thin tax base and smuggling. Major part of sales tax is refunded or adjusted and net tax in the kitty of government comes to around 5 to 6 percent.

The higher sales tax rate at 17 percent and its procedure is mother of several ills. Its higher rate stands in the way of its full collection. Being a consumption tax, it directly impacts inflation, promotes smuggling, encourages massive tax evasion and corruption.

It may be noted that there are only about 150,000 registered sales tax payers out of which about 75,000 are actively filing sales tax returns and a large number of potential tax payers such as retailers are out of tax net. In USA, the richest country in the world, the sales tax rate is 8 percent, in India 12.5 percent, Indonesia 10 percent and in most of the Far Eastern countries, it is between 6 percent and 8 percent.

The apex trade body said that according to FBR’s own study out of 17 percent sales tax, the net revenue collected by the government is between 5-6 percent. Sales tax be effectively used to broaden the tax base provided the standard sales tax rate is brought down in accordance with following mode of GST: Sales Tax at 7 percent non-adjustable and non-refundable to be collected at single stage at import and/or at manufacturing except high tax earning sectors for the government viz POL, energy, telecom, tobacco and liquor. In value added chain industry it may be collected at 0.5 percent at each stage of value addition..

Finance Minister Senator Mohammad Ishaq Dar has, however, advised the Federal Board of Revenue (FBR) that taxpayers’ friendly policy should be part of budget proposals for fiscal year 2017-18.

The tax related proposals and suggestions collected from these stakeholders were being examined in detail for inclusion in the budget. According to Finance Minister the work in this regard was in the final stages.

POSTING OF REVENUE OFFICERS AT PREMISES OF TAX PAYERS

Federal Board of Revenue (FBR) has been urged to amend sales tax laws related to posting of Inland Revenue officers at premises of a registered persons for monitoring sales and production.

The FBR or the Chief Commissioner has been vested with the discretionary power to post Inland Revenue Officers at the premises of the registered person, monitor production, sales of goods and stock position etc.

Such kind of discretionary powers are out dated which create a perception of anti-business and anti-investment government policies and create harassment. It further said that in the modern era of computerization and available methods of monitoring the entire supply chain, and production capacity of each industry with such harsh provisions are unnecessary.

Further, it encourages direct contact between a taxpayer and tax collector which is against the government policy as it leads to corruption and tax evasion. Besides, it is revival of supervise clearance scheme of central excise, in Sales Tax Act, 1990. The Section 40B of Sales Tax Act, 1990 should be repealed by elimination of this discretionary power, it will restore confidence of investors, encourage expansion of industry and generate employment opportunities.

The top ranking business leaders alleged that powers of Inland Revenue officers have been grossly misused in determining the payment of tax against a trade transaction.

According to FPCCI Section 8A of Sales Tax Act, 1990 provides joint and several tax liability in case tax is not deposited within government exchequer. The provisions were grossly misused by the field formation, who in past prosecute entire supply chain under the provisions of section 8A.

The section has resulted in abuse of powers, creates fear, uncertainty and panic among legitimate business.

It also clashes with Section 3 of the Act, which clearly states that payment of due sales tax is the sole responsibility of supplier. If supplier is an active taxpayer at the time of transaction then the sole responsibility should lie on supplier. The buyer should not be made liable or responsible for any default of supplier.

RISING RATE OF INFLATION

Meanwhile the business community has expressed serious concern over what they called rising inflation soaring 4.8% during April 2017.

Pakistan Bureau of Statistics (PBS) gathers market-data and calculates the CPI on a monthly basis, along with Wholesale Price Index (WPI), while it also calculates the Sensitive Price Indicator (SPI) on a weekly basis. The trimmed core inflation has been observed at 4.8 percent in April as compared to April 2016. According to recent reports; “The average CPI-based inflation during the first 10 months of the current fiscal year (July-April) increased 4.09 percent as compared to the same period of the previous year.”

The President of All Pakistan Business Forum (APBF) Mr. Ibrahim Qureshi stated that: “It is the duty of our national economic leaders to provide relief to the poor masses, whose survival is being threatened by such high inflation. It is alarming to note that the year-on-year CPI during April 2017 witnessed an increase of 4.78 percent as compared to the same month of the last year.”

The essential items that witnessed the highest price-increase during April are: peas (53.28%), carrot (46.82%), kinnow (26.33%), lemon (39.38%), cauliflower (12.01%), private school fees (10.73%), apple (10.28%), banana (7.64%), chicken (3.34%), potatoes (2.81%), and house-rent (1.52%).

Official data from the Pakistan Bureau of Statistics (PBS) revealed that: On month-on-month basis, inflation was recorded at 1.4 percent in April as compared to March 2017. In April, the WPI increased 0.89 percent, while SPI decreased 0.91 percent, according to the data. The non-food and non-energy core inflation during April 2017 was recorded at 5.5 percent as compared to April 2016, during which it was recorded at 4.4 percent.

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