ISLAMABAD: The Finance Bill 2024 has proposed a sales tax withholding rate of 80 percent on supplies of coal, gypsum, plastic waste, crushed stone, paper, and paperboard.

Arshad Shehzad, a leading sales tax expert, explained that the government, in the new Finance Bill, has proposed to broaden the scope of sales tax withholding provided under the 11th schedule of the Sales Tax Act 1990.

He informed that the sales tax withholding on supplies of coal, gypsum, plastic waste, crushed stone, paper, and paperboard is proposed to be set at the rate of 80% by the purchaser. These items are commonly used in the manufacturing sector, in which their supply is well-documented.

Supplies by importers: Reduced rate of 1-4pc for purpose of tax withholding likely

However, the government has been facing significant tax evasion in their supply chain, which is often not properly documented or exploits the benefits of input tax adjustment.

Arshad stated recently, the government uncovered a significant tax fraud involving fake and flying invoices related to the supplies of these items. In an effort to reduce tax fraud and leakages, the government has shifted the responsibility for tax payment to the manufacturing sector by expanding the scope of sales tax withholding.

Shehzad appreciated this move; however, he is uncertain whether the genuine supply chain will be able to absorb the adjustment of such a high rate of sales tax withholding from their output tax. This aspect yet to be seen, he concluded.

Copyright Business Recorder, 2024