Tax collection in distress: FBR imposes 5% sales tax on second-hand and worn clothes

This rate is double the 2% tax collected before the budget.

ISLAMABAD:

A desperate federal government has imposed 5% sales tax on import and domestic supply of second-hand and worn clothes, which are largely consumed by poorest of the poor.

To give effect to the decision, the Federal Board of Revenue (FBR) issued a notification here on Friday. According to the notification, sales tax at the rate of 5% will be charged and collected both on import and domestic supply of second-hand and worn clothing.

Second-hand clothes are used by the poorest class of the country, particularly in winters. The move has again raised questions over the government’s policy that has so far hurt the lower and middle classes and given relief to the rich.

Former finance minister Dr Hafiz Pasha has termed the government’s policy anti-poor and pro-rich. In the budget, the government cut the income tax on asset management companies by 10% to 25% but increased the sales tax by one percentage point to 17% that has affected every citizen irrespective of his social status.



FBR officials argued that by setting the 5% tax rate for second-hand clothes, the government has actually given relief to the people. In the budget, the sales tax on second-hand and worn clothes was erroneously fixed at 17%, they said.

The rate however is more than double the sales tax before the announcement of new budget. Before the budget, it was just 2%, as confirmed the FBR.

Officials said second-hand clothes cannot be exempted from tax as this category also covers import of second-hand curtains and bed sheets.

For the current fiscal year, the government has given Rs2.475 trillion tax collection target to the FBR that experts like Pasha say will be missed by at least Rs150 billion. Any shortfall in the target will derail the new IMF programme.

The government is under extreme pressure by the IMF to withdraw all types of exemptions – a structural benchmark for the IMF programme that the fund’s board of directors may approve on September 4.

Finance Minister Ishaq Dar had already said the government would fetch Rs300 billion more by withdrawing exemptions and plugging loopholes. This will be in addition to the Rs207 billion worth of taxes imposed in the budget.

Pasha said the FBR’s budget measures were stretched over all areas and there was no strategic direction in the budget.

Published in The Express Tribune, July 13^th, 2013.

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