Karachi, March 15, 2024 – The Karachi Chamber of Commerce and Industry (KCCI) has raised concerns over the recently introduced sales tax restrictions, warning that they could severely impact compliant taxpayers.
The amendments, introduced through SRO 350 (I)/2024, have been criticized for their arbitrary nature and lack of consultation with stakeholders.
KCCI President, Iftikhar Ahmed Sheikh, highlighted the detrimental effects of the amendments on various categories of entities registered in the Sales Tax Regime. He emphasized that these changes fail to consider the specific nature of businesses and sectors, potentially causing significant damage to compliant entities across the board.
In a letter addressed to Chairman Federal Board of Revenue, Malik Amjed Zubair Tiwana, President KCCI urged for a review of the amendments. One of the contentious points raised was regarding Rule 5, Sub-Rule (2), which mandates the submission of balance sheets indicating business capital and corresponding assets in the bank. Sheikh argued that this requirement would create unnecessary complications for entities such as Commercial Importers and Trading Houses, as they already submit similar documents to the FBR during the filing of Income Tax Returns.
Furthermore, Sheikh expressed concern over Clause C, Sub-Rule (4), which requires owners of registered entities to undergo biometric verification at NADRA Sahulat centers. He criticized this as contrary to the principles of ease of doing business and suggested exempting regular filers of Sales Tax and Income Tax returns who are on the Active Taxpayer List (ATL) from such procedures.
Another amendment highlighted by Sheikh was the restriction on the volume of sales to a maximum of five times the business capital of an entity, as outlined in Rule 18, Sub-Rule (1). He argued that this rule overlooks the practical realities of business operations, particularly for commercial importers and exporters who often rely on extended credit periods from suppliers.
Sheikh emphasized that such restrictions only serve as hurdles to business growth and called for their removal from the Sales Tax Rules. He underscored the importance of supporting commercial importers, especially those who provide vital support to Cottage and Small industries by offering credit facilities.
The rationale provided for the amendments, aimed at curbing fake and flying invoices, was deemed insufficient by Sheikh. Instead, he proposed a reduction in the rate of Further Tax levied on sales to unregistered persons, suggesting that a lower rate would discourage evasion and significantly reduce the prevalence of fraudulent invoices.
Additionally, Sheikh recommended rationalizing the sales tax rate for sectors like Wholesalers and Retailers, while advocating for a reduction in the withholding tax rate on local supplies. These measures, he argued, would help broaden the tax base and effectively combat the issue of fake and flying invoices.
The KCCI’s stance reflects the growing concerns within the business community regarding the impact of regulatory changes on compliant taxpayers. The Chamber calls for a more consultative approach to policy formulation, ensuring that measures aimed at addressing tax evasion do not inadvertently burden law-abiding businesses.