ISLAMABAD: The top taxman on Wednesday appealed to big businesses to opt for Prime Minister Imran Khan’s tax amnesty scheme and declare all their hidden sales as only 11% of manufacturers were registered with the sales tax department.
Syed Shabbar Zaidi, the new Federal Board of Revenue (FBR) chairman, appealed to law violators at a press conference, urging them to declare their hidden sales and proceeds of those sales by paying a paltry 2% tax.
He also urged the Securities and Exchange Commission of Pakistan (SECP) chairman to remove the companies, registered with the SECP, which were not filing their annual income tax returns. There were nearly 100,000 companies registered with the SECP and less than half filed income tax returns, he added.
“The FBR’s problem is that the registered sales tax persons are very low and we are thinking of bringing legal changes in the budget to broaden the sales tax net,” said Zaidi. But he did not disclose the nature of the legal and punitive measures that the FBR wanted to introduce in the budget.
After the press conference, a senior FBR official said the government may stop the manufacturers from doing business without having a bank account in the company’s name and having been an active income tax return filer.
“There are nearly 348,000 manufacturers who have electricity and gas connections designated for the industries,” said Zaidi. Out of them, only 38,000 or 11% of the total were registered with the FBR, he added. The chairman, who appeared stressful, urged the unregistered manufacturers to get themselves registered with the FBR by opting for PM Khan’s first tax amnesty scheme. The scheme, launched last week, offers people to declare their undisclosed supplies by paying 2% tax. It also offers people to declare their hidden offshore and domestic assets by paying nominal taxes.
The FBR chairman said it was for the first time that a tax amnesty scheme had been extended to undeclared supplies by the manufacturers.
There is contradiction in the FBR’s sales tax law that allows people to remain non-filers of tax returns by paying sales tax at higher rates. The standard sales tax rate is 17% but the FBR has imposed 3% further tax on those who will sell their goods to unregistered persons and entities.
“I have come to give tax exemptions not to impose new taxes,” said Zaidi, while responding to a question on the rationale behind charging 3% further tax from the unregistered persons. Zaidi did not reply to most of the questions asked by journalists and only focused on taxpayers’ facilitation through the new amnesty scheme.
The chairman pointed out that there could be genuine reasons for the manufacturers to remain unregistered as some may fall in the category of cottage industry. The manufacturers who fall in the category of cottage industry are not required to register for sales tax purposes. Cottage industry is defined as having annual turnover from taxable supplies below Rs10 million and whose annual utility bills (including electricity, gas and telephone) do not exceed Rs800,000.
The sales tax law states all suppliers engaged in making supplies to sales tax-registered persons are liable to be registered with the Inland Revenue Service.
Member Inland Revenue Operations of FBR Seema Shakil said the FBR had served notices on unregistered manufacturers, adding that business associations wanted the terms of cottage industry to be redefined as the cost of electricity and gas had gone up. Zaidi did not rule out the possibility of involvement of FBR officers in declaring some big manufacturers as cottage units. The FBR chairman also said there was no formal proposal to give tax amnesty to the unregistered and smuggled vehicles.
He emphasised that he wanted people to voluntarily come into the tax net, reiterating that the FBR’s harassment culture would be brought to an end.
Published in The Express Tribune, May 23rd, 2019.