KARACHI: Karachi Tax Bar Association (KTBA) has suggested the tax authorities for introduction of full fledged value-added tax (VAT) and reduction of sale tax rate up to 10 percent in order to discourage under invoicing, corruption and smuggling.
The KTBA recently organized pre-budget seminar to formulate tax proposals for budget 2019/2020. Saud-ul-Hassan, Director Tax at EY Ford Rhodes presented issues pertaining to sales tax.
He said that the VAT system was adopted for documentation of economy. However, presently the Sales Tax Act, 1990 is a blend of numerous, included:
— exemption; zero-rating, subsidized/reduced rates;
— fixed tax regimes, extra tax, further tax, value addition tax;
— withholding tax provisions;
— various restrictions on claiming input tax; and
— various special regimes.
He recommended that all the distortions in VAT system should be removed and full fledged uniformed VAT system should be adopted.
“This will provide a level playing field for all registered persons and restore their confidence,” he said and added that it would ensure proper documentation of economy and a genuine increase in the tax to GDP ratio.
Highlighting the higher sales tax rate at 17 percent, he said that it was coupled with various increasing conditions such as further tax, extra tax, minimum VAT etc.
Further restrictions on claim of input tax, the sales tax cost (effective rate) is further enhanced. “Such outlook on a tax compliant person promotes tax evasion in the masses,” he added.
It is suggested that the tax rate may be brought down to 15 percent and gradually up to 10 percent. “The reduced rate will encourage the unregistered persons to get themselves registered.”
“It will also result in broadening of tax base and documentation of economy and discourage under invoicing, corruption and smuggling,” he added.
Pointing out the issue of extra tax levied on certain goods, which disallowed input tax, he said recommended that in order to reduce the cost of doing business the extra tax should not be levied on goods sold to manufacturers for their own use.
He said that through the Sales Tax General Order 27 of 2014, the FBR had exempted the supply of parts and accessories to the automobile manufacturers from the levy of extra tax, however, other manufacturers have not been granted similar exemption.