Registered, unregistered firms: Steel sector seeks uniform rate of 20 percent GST

Steel traders have urged the federal government to charge 20 percent uniform sales tax on iron and steel products for registered and unregistered firms to avoid tax evasion. According to tax proposals sent by Pakistan Iron and Steel Merchants Association (PISMA) to Advisor to Prime Minister on Finance and Revenue Abdul Hafeez Sheikh, defective government policies are leading to tax evasion and elimination of honest trade, besides massive and unrecoverable loss to the exchequer.
Presently, the sales tax for registered firms is 17 percent while unregistered firms are required to pay an additional 3 percent to a total 20 percent sales tax on iron and steel products (flat).
The difference of additional sales tax of 3 percent on unregistered firms is very huge in iron and steel trade; therefore tax evasion is gradually increasing as the people who are buying steel material are not taking invoice, while the people who are taking invoices not buying the material.
"The unscrupulous elements are taking full advantages of 3 percent difference and leading to the issuance of fake invoices, which resulted in heavy losses to national exchequer in term of revenue. The estimated sales tax gap has also been reached nearly 67 pc of the total sales tax collection due to these practices," PISMA said.
In order to increase the revenue collection and discourage the tax evasion, PISMA has proposed single rate of sales tax for both registered and unregistered persons/firms. The rate can be fixed at the higher slab of 20 percent so that the national exchequer does not suffer further loss.
"Uniform 20 percent rate of sales tax should be imposed on iron & steel products (flat products), which is industrial raw material including HS code 72.08.72.09,72.10," it demanded.
The Federal Board of Revenue (FBR) has already introduced a uniform rate of sales tax regime for other steel sectors including ship breaking industry, steel melters, etc, the PISMA budget proposal mentioned. Federation of Pakistan Chamber of Commerce and Industry (FPCCI) has is also supporting the demand of Pakistan Iron and Steel Merchants and in favor of a uniform sales tax rate on iron and steel products (Flat product).
The national exchequer will be directly benefited with implementation of these proposals and one rate of sales tax which is suggested to be set at the higher side i.e. 20 percent will enable the government to increase collection of tax. The FBR move will help stop the issuance of fake invoices, which will also in essence cut the claims for illegal input/refunds. This will also help to reduce the tax loss of 3 percent to the national exchequer due to issuance of fake invoices.