ISLAMABAD: The business community of Lahore and Peshawar have approached Prime Minister Shehbaz Sharif against harsh sales tax measures introduced through the Finance Act 2024 including the Federal Board of Revenue’s SRO 350(I)/2024, having negative implications on compliant units.
The chambers of Lahore and KP have both requested the Prime Minister to review SRO 350(I)/2024 and other negative measures of Finance Act 2024.
The KP and Lahore-based business community informed the Prime Minister that the business community in Pakistan is confronted with steep and multi-dimensional economic challenges. Being the representative of the business community, some latest issues have been highlighted, which are hampering the private sector growth, creating problems for the tax-compliant persons.
Finance Act, 2024: FBR official explains changes made to Sales Tax
The Finance Act 2024 and some recently issued SROs by FBR contain several amendments that are disproportionately affecting the businesses compliant with tax regulations.
They said that the SRO 350(1)/2024, has linked the buyers’ ability to file sales tax return to the compliance of their suppliers. If any of the suppliers does not file their return, the subsequent buyer is unable to file their sales tax return or has to leave the respective input tax already paid by him to file return, thereby penalising the compliant taxpayer. Due to this measure, a dangerous chain reaction has been set in motion and many people are being affected and had brought the system to a grinding halt, severely affecting businesses at every stage of the supply chain.
Considering the fact that the IRIS system is highly automated, the system cannot take any input and output of Sales Tax despite the Annexure A and Annexure C in sales tax returns. To resolve the issue of fake invoices, checks should be incorporated in the FBR’s internal system rather than causing inconvenience to all the compliant taxpayers.
According to the Finance Act 2024, the limit for cash payments of Rs50,000 under Section 73 is to be considered in aggregate. Considering the recent inflation, the previous limit of Rs50,000 per transaction should have been enhanced in the Finance Act 2024. This new measure of limiting the cash payments to Rs50,000 in aggregate would adversely impact the business operations and cash flows of SMEs and manufacturers who are engaged in supplies to the local retailers and other segments of the society.
Currently, the economy is not digitised, and instead of providing relaxation and facilitation to local industrialists in these difficult times, such policies are restricting their activities. This provision should be withdrawn for local SMEs, providing them with the breathing space needed to run their businesses smoothly and cope with the current economic challenges.
According to the Finance Act 2024, the Advance Income Tax to be collected from retailers under section 236H has been increased from 0.5 percent to 2.5 percent. Retailers have been indirectly bound to register for sales tax if their purchases cross the limit of Rs4 million. The manufactures are already paying 4 percent additional sales tax of retailers and this 2.5 percent advance income tax is an additional burden for the manufacturers. The policies should be aimed at bringing more segments into the income tax net rather than turning them away from the tax net. These strict measures will not bring the undocumented sector into the tax net; rather, they will incline these sectors to stay away from the tax net and create further problems for SMEs in issuing sales tax invoices.
The aforementioned measures are resulting in the squeezing of the existing compliant taxpayers in the tax net and limiting their businesses. The government should encourage the retailers and those segments who are not in the documented sector to increase their documentation and enhance their turnovers. Keeping in view the ground realities, the undocumented sectors should be facilitated to the maximum extent so that businesses which are not registered with FBR are being encouraged to come into the tax net.
In light of the above, business community of Lahore and KP have requested the Prime Minister to review the aforementioned measures in consultation with the stakeholders and devise policies to facilitate those who are in the tax net, both the chambers of Lahore and KP added.
Copyright Business Recorder, 2024
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