ACCA proposes single-digit sales tax

Association of Chartered Certified Accountants (ACCA) has proposed single digit sales tax, corporate tax rate between 20-25 percent, resolve classification/ jurisdiction disputes between provinces and federation, withdrawal of the Federal Excise Duty on services by Federal Board of Revenue (FBR) and zero percent sales tax on five leading export oriented sectors under SRO 1125/2011.
According to the budget proposals of the ACCA for 2016-17, the existing rate of Sales Tax at 17% is one of the highest in the region with 12.36% in India, 10% in Indonesia and just 6% in Malaysia. Sales Tax should be used to broaden the tax base and to avoid the net negative costs for economy, the rate should be brought down to single digit. The conflicts between various provincial revenue authorities and the federation resulting in double taxation of services owing to classification and jurisdiction disputes should be resolved to create a business-friendly environment and facilitate the tax-payers, it proposed.
In order to attract FDI and facilitate the local business eco-system the corporate tax rate should be reduced from the current high level of 32% (one of the highest in the region) to between 20-25%. Post 18th Amendment, the powers to levy and administer Sales Tax on services have been transferred to the provinces. Hence, FED on all such services should be withdrawn, it proposed.
The ACCA has proposed the FBR to ensure time limits specified in laws are adhered to facilitating the taxpayers; resolving the outstanding refunds issue positively; introducing confidence by establishing a swift response complaint resolution cell to deal with corruption and harassment of tax payers and ensuring no post remains vacant for more than a week to avoid delays in resolving tax-payers issues arising out of transfers, postings and additional charges, etc.
The Pre-Budget Proposal focuses on the Broadening of Tax Base, Structural Reforms, Direct Taxes, and Indirect Taxes. In line with the overall impact on economy, treasury, and the principles of Fairness and Justice, the measures targeted a reduction in reliance on indirect taxes, utilisation of NADRA and Withholding Tax databases, declaration of formalised asset valuations with fair market values, and lowering Corporate Tax Rate.
Amendment of Section 111 (4) foreign exchange remitted from outside Pakistan should be amended to any amount of foreign exchange remitted from outside Pakistan through normal banking channels that is cashed into rupees by a scheduled bank and a certificate bank should be produced with a declaration and evidence of the source of funds. This will continue to promote the inflow of foreign exchange remittances towards the country while stopping the misuse of the provision to whiten/launder black monies and de-incentivizing genuine taxpaying businesses.
Section 153(4) empowers the Commissioner Inland Revenue for issuing Exemption Certificates in cases where the underlying payment is not chargeable to tax due to various reasons, however, This provision should also be inserted in Section 152 to facilitate the business with non-residents companies/businesses where the underlying payments are not chargeable to taxes as the current backlog of refunds creates undue stresses on businesses.
The current rate of Minimum Tax in Section 113 of 1% should be brought down to 0.4%. The minimum tax is irrespective of the net profit or loss with the exception of gross loss. This affects businesses adversely as they end up paying double taxes on their revenues and businesses that are in loss face additional pressure in their cash-flow. In the presence of Section 113 already dealing with minimum tax on turnover, the minimum tax should not be applicable on companies providing services. These should be subject to the normal tax regime (by reinstating the deleted clause 79, Part IV of Second Schedule). As a minimum, this minimum tax should be made adjustable against future tax liabilities.
Service sector has been one of the largest growing employer and contributing to national economy as well as the treasury. This should help expand the sector leading to improved revenue collections in the long term, the ACCA proposed.
While in Sales Tax and Federal Tax, the existing rate of Sales Tax at 17% which is one of the highest in the region with 12.36% in India, and 10% in Indonesia should be brought down to single digit. Sales Tax should be used to broaden the tax base and to avoid the net negative costs for economy. For cottage industry, existing defined limits of turnover (Rs 5 million) and utility consumption (Rs 0.8 million) were said to be outdated and should be revised to Rs 10 million and Rs 1.5 million respectively. A 0% rate on 5 export oriented sectors (SRO 1125/2011) was proposed to avoid refund issues along with a 2-3 % rate for non- filers.
Amendments in several other reforms from sections 170,177,214A etc were also proposed. Synchronising different tax and identity databases in conjunction with Integration of Federal and Provincial Revenue Authorities' systems will make an immense difference in broadening the tax base and efficiently collecting tax revenues. The reforms were suggested keeping in mind the low current tax to GDP Ratio (9%) and increased inflation in the economy. The main aim is to boost Real GDP growth which in turn will increase Foreign Investment and make our local businesses globally competitive.
To expand the tax base, it proposed that the NTN should be made mandatory for all property purchases and NADRA database linked with or allowed relevant access to by the FBR. There is a general tendency to undervalue assets leading to tax avoidance. To curb this, the FBR can form desks to declare formalised asset valuations in line with the fair market values.
The FBR should have integrated access to the databases of other authorities or at least be able to get information to utilize for identifying high net worth and otherwise taxable individuals and entities to bring them under the tax net. There is a general tendency to undervalue assets leading to tax avoidance. To curb this, the FBR can form desks to declare formalised asset valuations in line with the fair market values, it added.