The purpose of such a scheme is obvious: exporters would not have to pay sales tax on raw materials, which would later have to be reimbursed by the government under the existing GST policy, a procedure of considerable concern to the exporters as delays are commonplace associated both with corruption as well as red tape. This step has to be lauded.
However there are those who argue that the sales tax regimen is extremely harsh in this country, 15 percent, and that an effort must be made to reduce it. Sales tax is a user tax and is levied on consumers. It is passed in its entirety on to the consumers and, depending on the item produced, it could be a regressive tax.
In a country where poverty levels are rising according to government-released statistics such a tax on items of common use would be inflationary. In this context it was heartening that Shahid stated that the government is considering reducing it; but his rationale was that with a reduction of the tax, compliance would rise as, at present, the number of payers is small and compliance is an issue.
He also noted that the main burden of the tax falls on the manufacturers - a sub-sector that should not be penalised for increasing the country's productivity and generating valuable foreign exchange through exports. The wholesalers and distributors, with large incomes, do not fall within the purview of sales tax simply because they maintain no records. And compliance, seen exclusively in terms of higher government revenue, is vital for the macro-economic health of the country.
Shahid noted that more than half the target of Rs 250 billion for the current year, to be collected as sales tax, had already been realised. No one can argue with the fact that there is a real need to raise government revenue in this country.
The paucity of tax resources, attributed in large measure to those who sit in the assemblies as well as the corruption of tax officials, is a very serious problem. Thus greater compliance must be the target of the CBR for all taxes, including income tax.
Shahid urged the Lasbela Chamber of Commerce to seek redress of their grievance, not through payment of bribes to tax officials but through the Dispute Resolution Committee (DRC) whose recommendations have generally been accepted.
This is indeed an approach that the government must focus on. At present the consensus amongst the taxpayers is that bribery and collusion with tax officials is the only way to proceed. It maybe appropriate for the DRC to publicise the cases it looks at and its decisions so that more and more people may take advantage of this mechanism.