Local supplies of five zero-rated sectors: FBR sees Rs 20 billion-22 billion collection from lower rate of ST

The Federal Board of Revenue has estimated Rs 20-22 billion collection from lower rate of 4-6 percent sales tax on local supplies of five zero-rated sectors as compared to original projection of Rs 30 billion based on imposition of 17 percent sales tax at domestic stage.
Strongly defending withdrawal of exemptions taken through revised Statutory Regulatory Orders (SROs), Abrar Ahmed Khan FBR Member Reformed General Sales Tax (RGST) on Wednesday informed the National Assembly Standing Committee on Textile that the FBR had collected Rs 516 billion as sales tax during 2009-10 including Rs 247 billion at the import stage and Rs 269 billion on domestic consumption. The FBR has worked out collection of Rs 30 billion with withdrawal of sales tax zero-rating facility on local stages of five export sectors including textile, leather, surgical carpets and sports goods.
These were estimates based on the imposition of standard rate of 17 percent sales tax on local stages of textile sector. After revision of the relevant SRO for reduction of sales tax to 6 and 4 percent on domestic zero-rating, the FBR has now projected to collect Rs 5 billion during the last quarter of 2010-2011. Based on estimates of quarterly collection of Rs 5 billion, it has been worked out that the FBR would be able to collect Rs 20-22 billion during the fiscal. Another projection of Rs 7 billion from domestic sales tax of 4 and 6 percent on textile sector has also been given by the private sector experts.
If the calculation of Rs 7 billion in April-June 2010-2011 has been considered, the FBR would be in a position to collect Rs 28 billion during whole fiscal year. However, the FBR is still in a position to collect Rs 5 billion in one quarter by imposing 4 and 6 percent sales tax on local supplies in textile sector involving un-registered persons.
FBR Member RGST said that the level of compliance is evident from the fact that only 60,000 persons were filing sales tax returns before launching of the e-filing facility. At present, 84,000 to 85,000 are electronically filing sales tax returns. However, the total number of sales taxpayers, who are making payment along with the returns is quite low. Out of total sales tax collection on domestic consumption, 95 percent of the domestic sales tax is coming from 500 first taxpayers. Around 20,000 to 30,000 taxpayers are filing sales tax returns with meager amount of sales tax payments. However, these persons are contributing very meager amount of sales tax in the national kitty.
Sharing his experience of VAT, FBR Chief RGST Iftikhar Qutub informed the committee that as a nation failed to extend the sales tax up to the retail stage despite different lucrative schemes and lower rates for the sector. The VAT system adopted in Pakistan is entirely based on self-consumption, self-reliance and self-documentation and self-compliance. The only way to tackle the situation is to conduct audit which remained suspended in the past. However, the tax compliance system should not be so complicated which may not be followed by the small and medium taxpayers.
Explaining the revenue impact of zero-rated sectors, Iftikhar Qutub said that the FBR was not collecting any revenue from five zero-rated sectors including textile, leather, surgical, sports and carpets. There was no shortfall in revenue from the zero-rated sectors as the tax department was not receiving any amount from these five sectors. There is no revenue reduction or shortfall from zero-rated sectors.
The FBR has only worked out the estimates from zero-rated sectors at 17 percent. Later, the estimates have been downward revised keeping in view the consensus developed between the FBR and associations on 4 and 6 percent of reduced rate on the local supplies involving un-registered persons.
Referring to the projections of Rs 30 billion from local supplies of zero-rated sectors, the drafter of VAT law stated that the figure of Rs 30 billion has been presented by the All Pakistan Textile Mills Association (Aptma) before the National Assembly Standing Committee on Finance in a past meeting.
When asked about the imposition of 17 percent sales tax on textile sector, FBR Member RGST responded that if all items are liable to 17 percent sales tax, then the same has to be applied for other sectors. He stated that the rich people have to pay their due amount of taxes, but unfortunately if such elite class is not ready to pay taxes, the burden would be shared by other through indirect taxes. In the absence of proper contribution by the rich people, the government has to rely on the indirect taxes.
Responding to this MNA Rasheed Godial from MQM objected that the FBR wanted to put burden of taxes on the poor people through indirect taxation. FBR Member Abrar promptly intervened and boldly shared with the committee that the major issue of documentation would be addressed through the registration of the supply chain in the textile sector. The increase in taxes is directly linked with the documentation of the economy.
Abrar Ahmed Khan patiently heard the viewpoint of the committee and stated that all the relevant associations have been taken into confidence before issuance of the revised SRO for the zero-rated sectors. The whole scheme of the zero-rating regime has been carefully drafted taking into confidence all concerned associations.