Informal sector: raise in further ST to 10 percent opposed by Dar

Finance Minister Ishaq Dar opposed the proposal of Senate Standing Committee on Finance to substantially raise the rate of further sales tax from 1 to 10 percent to make it impossible for un-registered buyers to operate into informal sector. During the review of the Finance Bill 2015, one of the committee members insisted that the rate of further tax be suddenly increased from one to 10 percent instead of proposed 2 percent. Either the entire community of un-registered buyers would come into the tax net or it will leave businesses, committee member added.
The Finance Minister has termed the proposal 'unrealistic' and said that the rates would be increased in a gradual manner to increase the cost of doing business of persons registered with the sales tax department. Chairman Federal Board of Revenue (FBR) Tariq Bajwa said the rate of the further tax has been increased from 1 to 2 percent taking into account the feedback of business community to increase the cost of un-registered buyers within the supply chain.
FBR Chairman informed Senate Standing Committee on Finance here on Tuesday that the un-registered buyers are not ready to give computerised national identity card numbers (CNICs), but ready to pay one percent further tax. The cost of such un-registered buyers has been proposed to be further increased to bring them into the tax net. Obviously the cost of registered buyers would not increase. Further tax was imposed @ 1% in 2013 to increase the cost of doing business for non-complaint taxpayers and to encourage manufacturers, wholesalers and retailers to get registration. However, the desired objective was not fully achieved as most of the non-complaint sectors prefer to pay 1% further tax instead of getting registered. Therefore, it is proposed that the rate of further tax may be increased from the existing rate of 1% to 2%. Senator Illayus Bailour of ANP opposed imposition of increase in further tax from 1 percent to 2 percent in the budget, saying that all retailers in the country are unregistered so an increase in further tax will enhance input cost of manufacturers.
Chairman FBR responded that the increased further tax would penalise unregistered tax payers and it is aimed at enhancing documentation of economy. He said the FBR proposed imposition of 2 percent tax on land development which would help in reducing speculative prices in major urban centers. However, the government provided incentives on construction with the aim to kick-start economic activities in 16 related industries.
Tariq Bajwa said the FBR proposed a reduction in cash withdrawals from banks for filers of returns. In order to bring all banking transactions of non filers into tax net, he said that the FBR conducted a detailed study that proved that the bank deposits increased manifold after imposition of withholding tax on cash withdrawals.