ISLAMABAD: The Federal Board of Revenue is contemplating withdrawal of lower sales tax rates facility (2 to 5 percent) from five leading export-oriented sectors – textile, leather, carpets, surgical and sports goods under SRO 1125(I)/2011 and replacing it with the imposition of 17 percent sales tax.
This proposal is seen in the context of the IMF Mission Chief Jeffery Franks statement at the end of second quarterly review talks held in Dubai. Franks hinted at the elimination of tax exemptions/concessions which is expected to help the FBR generate an additional Rs520 billion per annum.
On the other hand, industrialists fear the proposed step would have a negative impact on the country’s total export revenue. While tax consultants opine that the withdrawal of lower sales tax rates from five major export sectors would be very significant.
They point out that SRO 1125 is only pertaining to export-oriented sectors by applying multiple sales tax rates on exports – 2 percent, 3 percent, 5 percent and 17 percent sales tax is applicable at different stages. The FBR is likely to propose annulling SRO 1125(I)/2011 prior to the next budget, thereby withdrawing multiple rates of sales tax for manufacturers-cum-exporters of textile, leather, carpets, surgical and sports goods and putting in place a standard rate of 17 percent sales tax for these sectors.
It is believed that SRO 1125(I)/2011 is being misused by certain exporters by taking advantage of legal ambiguities as in the past, Directorate of Intelligence & Investigation, Inland Revenue, Karachi unearthed many cases involving units misusing the SRO 1125(I)/2011. There were units using only paper transactions to facilitate textile manufacturing units in evading taxes by declaring zero-rated supplies which are otherwise chargeable at 5 percent under SRO-1125 dated 31-12-2011.
