Bewildering, if not ridiculous, will certainly appear to be the decision of the Central Board of Revenue, to suspend temporarily, implementation of SRO 315(I)/2005, which it had deemed expedient to issue only two days earlier, and to invite, instead, the Pakistan Sugar Mills Association, on April 20, to work out a practicable formula for drawing the entire sugar business into the tax net. This has reference to a Business Recorder report from Islamabad, appearing on April 19, pointing out that hasty instructions were issued, on April 18, to collectors of sales tax not to proceed with compliance on earlier instructions.
It was a case of getting wise after the event, evidently in response to the sharp reaction of the sugar trade to the bar that had been placed on the sale of sugar to unregistered wholesalers and dealers.
For as the news report said the affected wholesalers and dealers, seemingly incensed at the restriction, stayed away from sugar buying the very first day of the SRO's enforcement. It will be recalled that under SRO 488(I)/2004, CBR had issued SRO 315(I)/2005, on April 16, so amending the earlier rule as to make it mandatory for the sugar manufacturers to restrict supply of the commodity only to dealers and wholesalers, who were registered under the Sales Tax Act, 1990.
As the new SRO was to be applicable to all the dealers and wholesalers of sugar, who were, otherwise, liable to registration, but had still remained out of the tax net, it was, probably, conceived as an instrument to increase sales tax collection to a considerable extent.
Moreover, quoting official sources, a Business Recorder news report, appearing on April 17, also had it that the CBR would soon obtain the list of sugar dealers and wholesalers from the manufacturers to ensure their registration with the sales tax department.
However, now, all that appears to have backfired. There can be no disputing the Revenue Board's urge for expeditious broadening of the tax base, with a thrust on the sales front, in the light of its success in the developed countries. But the fact remains that, notwithstanding the big exercises undertaken during recent years towards that end, including, the tax survey and subsequent incentives like amnesty initiatives, no appreciable progress has been possible.
Past failures, in this regard, have also been attributed to a glaring lack of tax culture in Pakistan, as also to flaws in the overall taxation framework. Attempts have certainly been made to address these impediments with reforms and restructuring of the entire taxation system, but fulfilment of their objectives will be seen to have remained elusive.
As for greater reliance later placed on the sales tax, on the pattern of other countries, it has fallen too short of expectations. For the response of potential taxpayers has remained rather discouraging to a considerable extent. To overcome this problem recourse had to be taken to a strategy to address their doubts and misgivings by giving them the option to stay unregistered, by paying three percent additional tax.
This appears to have had special appeal to sugar wholesalers and dealers, almost all of them, reportedly belonging to this category. The authorities would have done better to prepare them in advance by taking them into confidence, through consultation with PSMA. Now that a move has been made in that direction, one hopes that the crisis resulting from the hasty action, would be resolved before it becomes too late.
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