RECORDER REPORT

PESHAWAR: Khyber Pakhtunkhwa Chamber of Commerce & Industry (KPCCI) has called for the broadening of tax base and reduction of tax rate to strengthen the national economy, saying passing further burden on the existing tax payers is not solution to the problems faced by the country. The demand has been made in recommendations of chamber for incorporation into the federal budget for financial year 2016-17.

The recommendation said that Sales Tax laws in Pakistan are extremely complex and multifarious and perhaps that is why public perception about the imposition of tax/value added tax (VAT) is obviously antipathy. It said that Pakistan can turn around its economy if it exercises fiscal discipline and plugs gaping holes caused by bad governance in different sectors of economy.

The KPCCI said that energy shortage is crippling production while poor tax base and collection mechanism is aggravating the taxes to GDP ratio. Accordingly, the prevalent high rates of sales tax from 17% to 29% as applicable on specific taxable goods, in itself invites for evasion of tax which not only paves way for smuggling, but also inflicts a severe burden on the existing tax.

The recommendations have also strongly recommended a strategic review of sales tax and instead of current ratio 15% to 29%, while simultaneously carrying out certain steps to enlarge the tax base. The tax rate it said is quite high; which is adding fuel to inflation. Various forums in the past have strongly agitated against the higher sales tax rates and demanded to bring that down to at least half of the prevalent rate.

The KPCCI has said that import of raw material is subjected to sales tax ranging 15% to 26%, which not only resulting in increase of cost of materials to the same extent, but also upshot in promoting smuggling from the land routes including Afghan Transit Trade for the materials not available in Pakistan. Obviously, the industrial undertaking utilizing such raw materials cannot compete with those using smuggled raw materials. Secondly, commercial importers paying up to 45% incidence of taxes on raw materials are mostly out of business, because they cannot compete with imports under multiple exempt/zero rated regimes and smuggled materials, resulting in loss of substantial amount of revenue.

To safeguard the interest of manufacturing sector, the chamber has proposed that sales tax on import of raw-materials may be substantially reduced to bring that down at 10% during next two to three years.

In the commendation, the chamber has called for the abolition of the withholding tax to ease the registered persons and promote transparent purchases and also result correct sales declaration. The chamber said that currently registered persons are responsible to collect/deduct 17% withholding tax on purchase from unregistered persons, which is seriously hindering the trade and commercial activities in the country. The aforesaid withholding results in evasion as the unregistered persons are not allowing transactions for the aforesaid deduction/collection/without declaring the purchases, giving rise to tax evasion.

The recommendations aid that the betterment of documentation if targeted and achieved could eventually enlarge the tax base.

With this consideration in view and with a view to facilitate existing taxpayer by providing incentives to purchase from registered persons it is recommended to modify Section 65A of the Sales Tax Act, 1990 in such a manner that the manufacture should be entitled to a tax credit of 2.5% of tax payable from a tax year if 90% of his purchases are made from a person who is registered under the Act during the said tax year. The documentation will absolutely encourage the registered persons to make purchases only from the registered persons.