The government has decided to maintain a single rate of 15 percent sales tax and do away with higher rates of 18, 20 and 23 percent. The single rate of sales tax at 15 percent would substantially reduce the cash flow problems for the industries.
The CBR has also withdrawn 20 percent GST on all items liable to this higher rate of sales tax.
About 228 tariff lines were subjected to higher levy of sales tax at the rate of 20 percent which not only increased upfront cost of industries, already facing serious challenges from cheaper competing imports, but also gave rise to refunds in certain essential industries. The CBR has decided to abolish the higher tax rate of 20 percent to provide relief to the consumers.
The sales tax regime was unnecessarily made complicated through the introduction of multiple tax rates. With a view to giving a significant boost to investment and to reduce consumer prices, it is proposed to reduce the rates of sales taxes, unify the tax regime and reduce the need for tax refunds.
This measure is a credible measure which will have a salutary effect on efficiency of the industry as it will significantly reduce the cost of doing business, release the stuck up cash, remove the need to claim refunds and, above all, save the hassle of dealing with tax officials.
In order to remove a major trade distorting measure, it is proposed to abolish ''further tax'', as it was an important factor in giving rise to ''flying invoices'' which subsequently contributed to inadmissible refund payments. Though this levy contributed approximately Rs 9 billion annually, its removal will encourage growth in textiles, steel, chemical, cement, beverages and a wide range of consumer items which would be freed from this additional burden.
Moreover, it will directly contribute in reducing inadmissible refund claims and payments.
As the sales tax collected on ginned cotton, hides and skins and raw wool is adjusted or refunded at subsequent stages of production by the spinning sector, it is proposed to zero-rate supply of ginned cotton.
This measure will remove cash flow problems for important export-oriented industries to the extent of Rs 15 billion per annum and expedite payment to ginners and growers of cotton and considerably reduce export-related refunds.