Bowing to pressure: Govt exempts importers from 5% sales tax

Three tax decisions withdrawn in less than four months.

ISLAMABAD:

In yet another retreat, the government on Monday suspended a statutory regulatory order (SRO), exempting commercial importers from even reduced sales tax of five per cent – a move tax experts term “a policy of appeasement”.

The decision was taken in a meeting between Finance Minister Dr Abdul Hafeez Shaikh and representatives of the business community here.

The decision comes just three days after Pakistan and the International Monetary Fund (IMF) ended talks inconclusively, particularly on the issues of tax and budget targets. The talks were held under Article IV of IMF’s Articles of Agreement to review the state of economy.

In less than four months, the Federal Board of Revenue (FBR) has reversed three decisions. Earlier, it suspended the condition of disclosing national identity card numbers for unregistered traders up to January 2012 and amended Annexure D of income tax return form, minimising the disclosure of expenses. In addition to these, the government has failed to register 700,000 potential taxpayers.

“The government has accepted the business community’s demand and suspended SRO 1012 and restored SRO 283,” said Siraj Kassam Teli, Chairman of the Businessmen Group of Karachi, while talking to The Express Tribune. He led the businessmen delegation in the meeting with the finance minister.

He said enforcement of SRO 1012, issued on November 4, blocked clearance of 400 to 500 containers at ports.

With the restoration of SRO 283, two sales tax rates for five major export industries have been restored and commercial importers will not only be exempted from five per cent sales tax but withholding tax under the presumptive regime will also be reduced to one per cent from five per cent.

After enforcement of SRO 1012, the tax body had started charging five per cent withholding tax on the assumption that the importers would receive five per cent sales tax from unregistered buyers.

Under SRO 283, the textile sector will pay four per cent sales tax on fabrics and six per cent on yarn. The government had issued SRO 283 in April this year in the face of pressure from the business community. Independent tax experts and the IMF had criticised the move that created further distortion in the sales tax regime.

The performance of the FBR and its ability to meet the tax target of Rs1,952 billion was one of the two main disputed issues between Pakistan and the IMF during recent talks in Dubai. Owing to the differences, the government may not be able to get the mandatory Letter of Assessment from the IMF, depriving it of budgetary support from the World Bank and the Asian Development Bank.

Inland Revenue member Shahid Hussain Asad, while talking to The Express Tribune, said once issues related to implementation of SRO 1012 were resolved, it would be restored.

“The decision is a continuation of the policy of appeasement and is a major policy retreat in documentation of economy,” said Dr Ikramul Haq, an international tax consultant and advocate of the Supreme Court of Pakistan.

Sindh Industrial and Trading Estate Chairman Irfan Moton said the SRO 1012 not only increased the cost of imports, but also added to the problems of traders. He said the FBR had made it mandatory for commercial importers to collect five per cent tax on sale of goods even to registered taxpayers and then claim refund, which was unnecessary.

Published in The Express Tribune, November 22^nd, 2011.