KARACHI: The Federal Board of Revenue (FBR) has been urged to bring down sales tax rate to 14 percent in the budget 2017/2018 against the existing flat rate of 17 percent.
Federation of Pakistan Chamber of Commerce and Industry (FPCCI) in its budget recommendation of next fiscal year said that prevailing rate of sales tax at 17 percent in Pakistan is too high, as compared to other countries in the region.
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 -6 percent.
The higher sales tax rate at 17 percent and its procedure is mother of several ills. Its higher rate stands in the way of its full collection. Being a consumption tax, it directly impacts inflation, promotes smuggling, encourages massive tax evasion and corruption.
The FPCCI said that there are only about 150,000 registered sales tax payers out of which about 75,000 are actively filing sales tax returns and a large number of potential tax payers such as retailers are out of tax net.
In USA, the richest country in the world, the sales tax rate is 8 percent, in India, 12.5 percent, Indonesia 10 percent and in most of the Far Eastern Countries, it is between 6 percent and 8 percent.
The apex trade body said that according to FBR’s own study out of 17 percent sales tax, the net revenue collected by the government is between 5 – 6 percent.
Sales tax be effectively used to broaden the tax base provided the standard sales tax rate is brought down for which FPCCI recommends the following mode of GST:
Sales Tax at 7 percent non-adjustable and non-refundable to be collected at single stage at import and / or at manufacturing except high tax earning sectors 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 other case, the FPCCI recommended that the standard sales tax rate should be reduced to 14 percent in value added tax mode.
