PkRevenue.com – The government is contemplating a significant adjustment to the sales tax rate, potentially increasing it to 19% from the current 18% in the upcoming 2024-25 budget.
This proposal aims to generate substantial revenue for the next fiscal year but has raised concerns about its inflationary impact.
Analysts from Topline Securities Limited have said that the government is seriously considering this increase. The proposed hike follows the recent adjustment made through the Finance (Supplementary) Act, 2023, which raised the sales tax rate from 17% to 18%. The additional 1% increase is expected to further bolster the government’s revenue stream.
Tax experts have voiced concerns about the inflationary effects of the proposed increase. Unlike income tax, which is levied on profits, the sales tax is a consumption tax directly impacting retail prices. This means that the cost is passed on to consumers, potentially driving up the prices of goods and services and contributing to inflation.
Analysts have estimated that the proposed 1% increase in sales tax could contribute approximately Rs 180 billion to tax collection. Despite this significant revenue potential, the government might explore alternative measures. One option under consideration is the withdrawal of certain sales tax exemptions, which could offset the need for a rate hike.
The prospect of an increased sales tax rate has sparked a debate among economists and policymakers. On one hand, the government needs to enhance its revenue base to address fiscal challenges and fund public services. On the other hand, there is a risk that higher sales taxes could exacerbate inflation, making it harder for consumers to afford everyday goods and services.
The upcoming budget deliberations will be crucial in determining whether the government proceeds with the proposed increase. Policymakers will need to weigh the benefits of higher revenue against the potential economic impact on inflation and consumer spending.
As the budget announcement approaches, stakeholders from various sectors will be closely monitoring the government’s final decision. The outcome will have significant implications for the economy, influencing everything from retail prices to overall consumer confidence.
