The rate of two percent was also worked out on the basis of actual value addition of these sectors from the manufacturers till retail stage.
Technically after exclusion of items from 3rd schedule tax would be calculated on ex-factory price instead of retail price and normally there is at least 15 percent gape between retail or ex-factory price hence applying 17 percent sales impact the measure roughly give benefit around @ 2.55 percent at the other end extra levy was imposed @ 2 percent hence still tax payer would get some relief even after applying extra tax, further tax payer would no more require to follow complex procedure for printing and observing retail price on each of their items. Here it is important to note that now extra tax is also put on imported items whereas 3rd schedule was not applicable on imported goods hence disparity between local product and imported goods were also settled at the one end and tax impact was enhanced on imported goods at the other end. The FBR however did not exclude application of further tax and sales tax withholding on items levied with extra tax was the measure required to be take up as per agreed principle and to achieve entire satisfaction of the business community are the reason behind negative reaction on this particular account by business community, he said.
Commenting on reaction of business community, Arahad Shehzad said that FBR had recently issued four sales tax notifications to accept demands of trade and industry after intervention of finance ministry.
In the Finance Act 2013 some of the measures take up by the government were criticised by trade bodies all over in Pakistan, it was the general impression that existing narrow based of the country was further squeezed by these measures, stake holders were not taken on board and thus at least procedural measure where no significant impact on revenue be at least reviewed to boost the confidence of taxpayers community. The issues were remain under debate for over three months and finally Finance Minister met the business leadership of Karachi and assured all their proposals would be accepted, accordingly FBR has issued notifications 895 to 898 last week.
In this back ground after issuance of notifications by the FBR to fulfil the demands of business community, reaction from business community was quite surprising and it is observed that FBR seemed to be failed to win confidence of the business community, therefore to understand the implication of this notification in nitty-gritty, renowned sales tax expert and advisor of the business community in Karachi were asked to explain each notification separately.
Regarding levy of extra tax @ 2 percent in lieu of items excluded from third schedule, Shehzad informed that inclusion of items in third schedule was highly criticised in this finance bill, it was considered as a major step deviating from V A T based regime to a single stage tax levy, though it could generate additional revenue this year however burden of tax collection has to be beard by single person, further the potential unregistered supply chain would remain escaped from tax net. The FBR accepting this demand has removed recently included items from third schedule and levy 2% extra tax in term of special procedure. Technically after exclusion of items from 3rd schedule tax would be calculated on ex-factory price instead of retail price and normally there is at least 15 percent gape between retail or ex-factory price hence applying 17 percent sales impact the measure roughly give benefit around @ 2.55 percent at the other end extra levy was imposed @ 2 percent hence still tax payer would get some relief even after applying extra tax, further tax payer would no more require to follow complex procedure for printing and observing retail price on each of their items.
Regarding amendment in sales tax withholding procedures, Shehzad explained rate of sales tax withholding on distributors and wholesalers are reduced to the extent of 50 percent on existing rates and now withholding is required @ 1/10th, likewise commercial importers are excluded from sales tax withholding if the value addition tax was already been paid at import stage both these steps are taxpayers friendly having positive impacts, required to be taken earlier, the delayed measure after filing civil petitions by taxpayers who granted stay orders from competent courts reflects policy makers sluggish approach in responding and resolving genuine issues.
Application of 17 percent sales tax on purchases made from un-registered person without allowing input tax was one of the key issue raised under budget anomalies. The measure was tantamount to double taxation by imposing tax on both purchase and sales stage. In recent amendments rate of sales tax on purchases made from unregistered person was reduced to the extent of 1 percent the trade has got some sort of relief. However, it still raise eyebrow of persons having more sound understanding, apparently reduction of rate say from 17 percent to 1 percent may be portrayed as a big relief but in thread bear examination it''s not like that. Sales Tax is chargeable on sales and it is very simple that sales include entire cost of purchase, which means even if someone portion of purchase remain untaxed on purchases from unregistered person, at the time of sales the registered person is required to pay sales tax on sales value hence sales tax applied on it includes impact of sales tax to the extent of unregistered person hence paying even un adjustable tax @ 1 percent on unregistered purchases is in addition to the tax supplier is constitutionally liable to pay on sales. The policy makers also cannot reply that exporters being zero rated section under fourth schedule of the S T Act, 1990 would liable to bear burden of tax which could not be refundable to them, therefore technically the segment would not be termed 100 percent zero rate or sales tax free, sales tax expert said.
Amendment in sales tax rate of finished fabric form 5 percent to 3 percent in recently issued notifications though taken to meet the demands of business community but its adverse implication for treatment of sales tax from two percent to 3 percent on raw fabric or fabric used as industrial input for manufacturing of finished goods is one of the issue not properly been take care off.
Hence considering all the said measures in detail it seems that even positive steps of finance ministry were not worked out properly intentionally or unintentionally and thus failed to win confidence of the business community, Shehzad concluded. In his opinion the policy makers are required to regularly sit with trade bodies and open heartedly listen their proposal is the only way out not to only win their confidence but to achieve sustainable business growth, he added.