Finished articles, made-ups: imposition of 17 percent ST under SRO 1125(I) will promote illegal imports

The imposition of 17 percent sales tax on imported finished articles and made-ups under SRO 1125(I)/2011 through notification SRO 420(1)/2014 would promote and facilitate illegal imports through grey trafficking, Afghan transit trade and smuggling. Besides, genuine imports are also likely to be mis-declared and heavily under invoiced.
Well informed sources said the imposition of 17 percent sales tax at retail level on imported apparel, footwear and leather items has adversely affected all their business models and feasibilities. Prior to imposition of 17 percent sales tax, the importers of finished textile and leather goods are already paying value addition tax in addition to five percent sales tax applicable on similar goods which are manufactured locally. The abrupt increase of sales tax from five percent to 17 percent will bring to an end the growth of formal retail sector, which is already contributing more than 90 percent of total sales tax currently being collected by FBR.
This is apparently a discriminatory move by the government to steeply increased the sales tax on the import of finished goods of textile, footwear, leather, sports, carpets and surgical goods industries from five percent to 17 percent through SRO 420(1)/2014, an overnight increase of more than three times. Government has tried to give favour to local manufacturers by stating that locally manufactured finished articles will attract five percent sales tax whereas supply of the same imported finished articles will be charged with 17 percent ST.
The ultimate price of this will be paid by the consumers first and eventually the retail sector and its ancillary industries like real estate development of malls, jobs growth for the youth, reduced revenue collection through customs duties and even sales taxes as Pakistan becomes a pariah for international brands and foreign investors.
Tomorrow, the Government of Pakistan may impose same sales tax discrimination on imported eatables and the food sector, petroleum products which are imported or even cars for that matter without realising the consequences. It seems that government wants to penalise documented and taxpaying importers and retailers of finished goods by taking such counterproductive steps for the industry.
Industry insiders said that the government is trying to introduce two separate sales tax rates for locally manufactured goods and imported goods in a bid to make the imported good expensive enough to lose their market share. Its injustice with the consumers who want to buy international brands from local shopping malls, else they have to fly to Dubai and London for the same, they said.
Do they just want to indiscriminately apply higher taxes onto the same people who are already contributing huge taxes and duty without any thought as to the legality or consequences of these decisions, disgruntled stakeholder exclaimed. They said that the strength of most developed and documented economies is measured by their retail sales. All manufacturing and trade activities usually culminate at the retail stage and are reflected as consumption and spending at the retail level in some form. The most common and widespread retail activity manifests itself in food outlets, stores which sell FMCG's (fast moving consumer goods) and stores that sell apparel, footwear and accessories. By documenting these sectors the Government of Pakistan has an opportunity to multiply it's sales tax collection many times over and also get a clear gauge of how large or small an economy Pakistan really is.
Unfortunately that cannot happen with the issuance of SRO's that discriminate on sales tax rates based on country of origin. It shows the duality of the policy makers as opposed to uniformity and a planned and transparent approach to increasing sales tax collection by imposing uniform sales tax rates which encourage documentation and collection mechanism based on the type of industry or sector.
Sources said that Pakistan will be the only country in the world where consumers pay a different sales tax rate for the same category article depending on the country of manufacture. Due to this action, imported articles from the above mentioned industries will become more expensive for Pakistani consumers who pay taxes, Government of Pakistan's policy of liberalisation, free and fair trade and market reform will be looked at with extreme skepticism by organisations like the IMF and WTO as well as foreign investors who are considering Pakistan as place for investing, growth of the documented and tax paying segment of the retail sector which had just begun to show growth will reverse direction due to the more than three times differential in sales tax rates between local and imported products, the undocumented retailers, suppliers and importers who mis-declare are the only ones who will be able to survive and foreign brands and investors will get a very negative impression of Pakistan as a country that applies double standards.