KARACHI: Association of Chartered Certified Accountants (ACCA) has said that the existing sales tax rate of 17 percent in Pakistan is the highest in the region.
The existing rate of Sales Tax at 17 percent is one of the highest in the region with an average of around 12 percent in Asia (15 percent in India and Bangladesh, 10 percent in Indonesia and just 6 percent in Malaysia), ACCA said in its tax proposals for budget 2019/2020.
Sales Tax should be used to broaden the tax base and not as a replacement of direct taxation.
In order to avoid the net negative costs for the economy, the rate should be brought down to single digit in a phased manner with a proposed reduction to 14 percent.
The association also recommended harmonization of inter-provincial and federal-provincial taxation for avoiding double taxation.
It said that the conflicts between various provincial revenue authorities and the federation are resulting in double taxation of services owing to the classification and jurisdiction disputes.
Also, standardizing the applicable rates while also reducing them could facilitate the businesses while also increasing the tax revenues simultaneously.
Similarly, the lack of inter-provincial harmonization also results in double taxation of services owing to the classification and jurisdiction disputes.
These issues should be resolved to create a business-friendly environment and facilitate the tax-payers.
Point of origination or deliverance of services can be agreed upon by all revenue authorities as the basis of classification and the resulting jurisdiction to resolve the major inconvenience to the taxpayers.
The ACCA highlighted the issue of adjustable input tax and said with the introduction of the STRIVE system resulting online matching of invoices, the chances of sales tax fraud and/or error have been minimized.
Therefore the current restriction of limiting the input tax adjustment to 90 percent (ninety percent) of the output tax is outdated and needs to be abolished.
This will be in line with the principles of fairness, equity and justice for all and help restore the confidence of businesses.
The association also pointed out revision of sales tax return and said this should be made easy and automated as with the STRIVE system in place, chance of tax fraud are minimized to the maximum possible extent as claimed by FBR.
It further pointed out that in line with the principles of fairness, equity and justice for all, the appeals should be heard by a person not under the administrative jurisdiction/influence of FBR.