The Karachi Chamber of Commerce and Industry (KCCI) has recommended that the Federal Board of Revenue (FBR) impose a value-added tax (VAT) on supplies made to individuals who fail to provide their Computerized National Identity Card (CNIC) number.
This proposal, part of the budget recommendations for 2023-2024, aims to address anomalies in the current tax system and encourage documentation and transparency in business transactions.
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Under the existing Sales Tax Act, registered sellers are required to provide the CNIC number of unregistered buyers. However, despite compliance, registered sellers are still obligated to pay a 3% Further Tax (Penal Tax) on supplies made to unregistered persons. Additionally, if an unregistered buyer provides a fake CNIC number, the registered seller becomes liable and faces consequences.
Proposed Solution: The KCCI has put forth the following proposals to rectify the existing anomalies:
1. Treat the CNIC number of unregistered buyers provided by registered sellers at par with the Sales Tax Registration Number (STRN).
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2. Remove the requirement to charge a 3% Further Tax on supplies to unregistered buyers if the registered seller has provided the CNIC number of the buyer in the Sales Tax Return.
The implementation of these proposals is expected to yield several benefits, including:
1. Discouraging the cash economy and promoting documentation by placing trust in registered sellers.
2. Shifting the responsibility of broadening the tax base onto the Regional Tax Offices (RTOs) and Large Taxpayers Offices (LTOs) rather than solely on taxpayers.
3. Discouraging the use of fake and fraudulent invoices to evade the 3% further tax.
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4. Encouraging business transactions through formal banking channels, fostering growth and transparency.
By proposing the imposition of VAT on supplies to individuals who do not provide their CNIC number, the Karachi Chamber of Commerce and Industry (KCCI) aims to rectify the existing anomalies in the tax system. This initiative seeks to discourage the cash economy, promote documentation, and enhance transparency in business transactions.
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The KCCI emphasizes the importance of placing responsibility on tax authorities and fostering trust in registered sellers. Implementing these proposals will contribute to broadening the tax base and promoting a more robust and compliant business environment.
