Govt decides to withdraw 50% sales tax relief on sugar

Shaikh comes up with a carrot and stick policy for tax officials, asks to launch crackdown on 700,000 tax evaders.

ISLAMABAD:

Within 24 hours of the International Monetary Fund’s (IMF) deadline, the government has in principle decided to withdraw 50 per cent sales tax relief on sugar sale and increase the rate to 17 per cent, a first step towards winning the shattered confidence of the Fund.

Federal Board of Revenue Chairman Salman Siddique said on Wednesday that in the next Economic Coordination Committee (ECC) meeting, FBR would put a summary for seeking the body’s approval.

He was addressing a press conference after a tax commissioners conference, convened to shake up the tax machinery for achieving an overambitious tax target.

The FBR chairman said that there were two types of sales tax exemptions, one based on legislation and another on statutory regulatory orders (SRO). The government will have to take a decision to withdraw the SRO-based exemption, he added.

A visiting delegation of IMF on Tuesday extended its stay for another 72 hours with a 48-hour deadline to the government to deliver on some promises like increase in electricity tariffs and withdrawal of sales tax exemptions. However, it is yet to be seen how the Fund would take the government’s move as the donor has asked the country to take concrete steps.

The government had halved the sales tax rate in order to provide some relief to the consumers when sugar prices skyrocketed about one and a half years ago. If ECC approves the summary, FBR may collect an additional Rs3 to 4 billion in the remaining three months of the current financial year.

An FBR member told The Express Tribune that the government may also increase the ex-factory sugar price, a baseline at which taxes on sugar are collected. Currently, FBR is collecting the tax at a rate of Rs28 per kg, a price that does not exist at all.

In a related development, President Asif Ali Zardari has on Thursday summoned the economic team to take final decisions on the lingering issues of a cut in power subsidies and whether to take new revenue measures.

In another attempt to achieve the tax collection target, Finance Minister Dr Abdul Hafeez Shaikh has announced that the government will use a carrot and stick policy against tax officials.

“Stretch out to achieve the tax collection target of Rs1,604 billion or step aside from prime positions,” said Shaikh while addressing top officials of the Inland Revenue Service. He said if the officials cannot deliver on targets, then they should better leave the place for more competent people.

So far, FBR has collected Rs873 billion in eight months, facing a daunting task to collect Rs732 billion in the remaining four months.

He said the officials should be clear-headed in achieving the collection targets. When asked how the commissioners could be clear-headed when the government itself was not sure about the actual collection target, he said “for the government the annual collection target is Rs1,604 billion and if somebody thinks it is unrealistic then it is his personal view.”

In the revised fiscal framework, the finance ministry is eying collection of Rs1,604 billion while FBR has told the government that without new measures it cannot collect more than Rs1,570 billion. On the other hand, officials said, IMF has estimated that the annual collection would not exceed Rs1,540 billion.

“The officers should use all means, including going after the wealthy tax evaders, for achieving the tax target or be ready to leave their positions,” Shaikh warned. He asked the FBR officers to initially target 700,000 wealthy tax evaders.

Shaikh said the government will give more incentives to FBR for delivering on the targets. The officers are already receiving double salaries despite the fact that tax evasion amounts to 79 per cent of total taxes in the country.

Published in The Express Tribune, March 10^th, 2011.