Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has suggested that the rate of sales tax be reduced to 15 percent adjustable. The federation further recommended that sales tax be effectively used to broaden the tax base provided the standard sales tax rate is brought down and recommended that 7 percent sales tax (Non-adjustable and non-refundable) to be collocated at single stage at import and /or at manufacturing except high tax earning sector for the government viz POL, energy, telecom, tobacco, and liquor. In value-added chain industry it may be collected at 0.5 percent at each stage of value addition.
In its budget proposal for the years 2016-17, the FPCCI noted that the prevailing rates of sales tax at 17 present in Pakistan is too high , as compared to other countries in the region (India: it is 12.36 percent, Malaysia 6 percent, Thailand 7 percent and Indonesia 10 percent). This high rate is the root cause of tax evasion, corruption, thin tax base and smuggling. Major part of sales tax is refunded or adjusted and net tax in the kitty of government comes to around 5 to 6 percent.
The FPCCI appreciated the Prime Minister Mian Nawaz Sharif vision for allowing zero rated regime to five export oriented sector in the forthcoming budget 2016-17 and hope that the prime minister commitment would be fulfilled. The FPCCI noted that there is a special regime prevails for five export oriented sectors under notification 1125(I)2011. This scheme in recent couple of years has been modified quite a few times. The sales tax rate of 2 percent, 3 percent, and 5 percent on import of raw material for export oriented sectors have been increased to 3 percent, 3 percent and 5 percent respectively vide Finance Act , 2015.
The proposed incremental effect of sales tax rates under SRO 1125(i) 2011 tantamount to further strengthen notorious corruption prone sales tax refund regime. Inconsistent and uncertainty among export trade and its supply chain induces corruption and hurt exports as can be witnessed from the fact that the exports are shrinking or stagnant for the last 3 years and it is apprehended that Pakistan will not be able to double textile exports from existing 13 billion dollars to 26 billion dollars per annum as envisaged in the new textile policy 2014-19.
The FPCCI proposed that the original sales tax scheme based on no sales tax no refund for five export oriented sectors be restored and all items listed in the table -1 of SRO 1125(i) 2011 be chargeable to sales tax at zero rate within register supply chain of five export sectors.
The federation further suggested that sales tax at the rate of 2 percent along with further sales tax at the rate of 2 percent be charged on supplies made to unregistered person to ensure collection of sales tax from domestic consumption of such industrial and finished goods. The FPCCI noted that further tax at the rate of one percent was introduced in the Finance Act, 2014 and increased to 2 percent vide Finance Act 2015 on supplies made to unprinted persons.
The objective of further tax is to penalize with additional amount of sales tax where the buyer is not registered and government is not getting value addition sales tax. Keeping this objective in view, the law provides exclusion in certain conditions such as sales tax on retail price items falling under third schedule.
However, certain categories of persons who are paying value addition of sales tax in advance like commercial importer or persons who pay extra sales tax under special procedure rules are not excluded from the purview of further sales tax. The FPCCI suggested that that only industrial raw material including chemicals and dyes from cheaper 25 to chapter 40 of customs act be exempted from further tax. Commercial imports, persons paying sales tax and fixed rater of sales tax be excluded from application of further tax. I should be totally exempted from audit as per original scheme and be reduced to 1 percent from 2 percent.
The FPCCI suggested that all the plant , machinery and capital goods, not manufactured locally, be allowed to import at zero rated sales tax, customs duty and income tax as it will be ultimately used for the establishment of the industrial units-small, medium or large industry.
To broadening of tax base the FPCCI recommended that CNIC/ NTN be made mandatory on sale purchase of all properties of more than 100 sq yd. for commercial, more then 200 square yard for residential plot and flat of more than 1000 square feet area-and those who are non filer be subjected to 2 percent income tax on registered value. Valuation table be revisited in-parity of market trades.
A scheme of compulsorily issue a "Common Tax Identifier" card with the validity of 2 years to all persons who have filed returns and they should be treated as a preferential person at all times/occasions such as immigration, issuance of passports, licences etc.
Wherever the income is generated must be taxed indiscriminately with a political will. Federal government/Federal Board of Revenue (FBR) should persuade all the provinces to impose and collect agriculture tax. In case, if any provincial government does not have proper infrastructure to collect provincial tax then the FBR should be authorized to collect tax on behalf of the provincial government.