KARACHI: The Federal Board of Revenue (FBR) issued statutory regulatory orders (SRO), reducing sales tax to three percent from five percent on import and local supplies of fabric, violating its own commitment with International Monetary Fund (IMF).
As per details, the government through a memorandum on economic and financial policies for 2013-16 presented to the IMF for the latest loan programme – had committed to eliminate the SROs granting exemptions or concessions by December 2013.
But the issuance of a number of statutory regulatory orders (SROs) and subsequent reduction in sales tax on import of fabrics seems contrary to the commitment the government has made with the IMF.
On the one hand, the government has stopped issuance of any new tax concession or exemption (including customs tariff) through SROs except by a Parliamentary Act, and has planned doing away with the practice through legislation by December 2015.
On the other, the FBR issued four SROs related to sales tax reduction to three percent from five percent on import and local supplies of fabric with value addition tax rate at two percent.
This step reflects the government has succumbed to the pressure of certain “high and mighty individuals” because there is a vehement demand a 17 percent sales tax on import and local supplies of fabric. The experts termed it a political decision and feared that the step would result in loss of huge revenue to the national kitty.
Meanwhile, the FBR also unveiled a mechanism for payment of refund which has perturbed the industrialists. The notification said that refunds against local supplies would be admissible only subject to pre-refund audit in case of value addition of less then 10 percent, although no such practice existed in the recent past.
In another SRO 896, a series of home consumptions goods were relocated to Sales Tax Procedural Rules, 2007 from Third Schedule of Sales Tax Act 1990.
The experts see this step would help resolve sales tax collection at retail stage. However, the clarified that it had not imposed any new tax on household gas and electrical appliances, tiles, tyres etc.
These goods were subject to sales tax on retail price basis – which means that the sales tax of the complete chain from manufacturer till the manufacturer pays retailer in advance.
It said the business community approached FBR on grounds that that this system posed many practical problems for them and requested the body to do away with sales tax on retail price basis and agreed to pay two percent additional sales tax on the basis of actual value addition from manufacturer till retailer on all these items.
The FBR refuted that it was not a new tax or enhancement of existing rate but only a collection of tax, which even otherwise was payable by the supply chain.
In SRO 897, the FBR reduced the withholding sales tax rate from 20 percent to 10 percent of total sales tax that would be deducted by withholding agent on the sales tax invoice issued by persons registered as a wholesaler, dealer (including petroleum dealers) or distributor.
