PkRevenue.com – The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has proposed the elimination of the further tax in the forthcoming 2024-25 budget, aiming to alleviate the burden on the business community.
This recommendation comes as part of a broader set of budget proposals submitted by the FPCCI to the government.
The further tax, re-imposed in 2013 through subsection (1A) of section 3 of the Sales Tax Act, 1990, has seen periodic rate increases, reaching 4% in 2023. Initially intended to discourage sales to unregistered persons, the FPCCI contends that this objective has not been met. Instead, the number of genuine, tax-paying registered persons has not significantly increased.
According to the FPCCI, the high rate of the further tax has severely distorted the supply chain. The organization outlined several key issues arising from the current tax structure:
1. Excessive Burden: With a further tax of 4% atop an already high sales tax rate of 18%, businesses face an unbearable financial burden.
2. Discouragement of Registration: The high tax rate dissuades many from registering, declaring taxable transactions, and paying taxes, resulting in a net loss of revenue.
3. Financial Strain on Suppliers: Unregistered buyers often refuse to pay the further tax, forcing suppliers to bear this cost.
4. Encouragement of Tax Evasion: Some suppliers circumvent further tax by reporting fictitious sales to registered persons while actually selling to unregistered persons. This practice, known as ‘flying invoices,’ leads to undue claims of input tax or refunds, causing significant revenue loss to the government.
5. Underreporting of Sales: To avoid the additional tax burden, some suppliers understate the value of goods sold to unregistered persons.
The FPCCI pointed to the stagnation in sales tax collection growth as evidence of the damping effect of the further tax. Despite high inflation, economic growth, and revenue measures, sales tax collection only grew by 2.3%, from Rs 2,532 million in 2021-22 to Rs 2,591 million in 2022-23.
In light of these issues, the FPCCI strongly recommends the withdrawal of the further tax. This move is expected to reduce the undue burden on compliant taxpayers, foster economic growth, and eliminate unnecessary market distortions. The FPCCI also suggested that the Federal Board of Revenue (FBR) should leverage existing data to register individuals engaged in taxable activities who remain unregistered.
By adopting these measures, the FPCCI believes that the government can create a more equitable tax environment, improve compliance, and ultimately enhance revenue collection without overburdening businesses.
