Won't go back on CNIC condition: FBR chairman

FBR lost Rs850 billion sales tax in 5 years due to sales to unregistered persons

ISLAMABAD: Federal Board of Revenue (FBR) Chairman Shabbar Zaidi on Friday said there is no political hand behind the agitation call given by traders but vowed that the government would not compromise on enforcement of its condition regarding the Computerised National Identity Card (CNIC) numbers.

The top tax chief addressed a hurriedly called news conference a day before the traders would observe a shutter-down strike in major cities against the government’s decision to link sales of goods by manufacturers to seeking CNIC numbers.

He also clarified that the government has not imposed any tax on sale of wheat flour and any increase in prices is because of reasons that have nothing to do with the FBR.

Govt empowers FBR to go after offshore accounts

“The government would not back out from two issues of CNIC condition and withdrawal of zero-rating facility for five-export oriented sectors that are agitated by traders and industrialists,” he said.

“The traders’ bodies have political affiliations but I do not see any political hand behind the agitation call by them,” Zaidi said while responding to a question. “There is no central leadership of traders, which is hampering effective negotiations with them,” he added.

He said due to introduction of fixed sales tax regime, the small-sized traders should not be worried about the CNIC condition. Only those persons can collect 17% sales tax who are registered with the FBR and these are only 47,000 people, he added.

The CNIC is the key documentation measure of imposing a condition whereby businesses need to obtain CNIC from buyers purchasing goods worth more than Rs50,000. It has been criticised by the industry at large. “The CNIC issue has been blown out of proportion to frustrate the government’s efforts to broaden the sales tax net,” said Shabbar Zaidi.

He said only 47,000 registered manufacturers would be affected by the CNIC condition and the FBR has not yet begun the process of bringing the nearly 300,000 remaining industrial consumers in sales tax system.

“Total number of industrial electricity connections is 341,000 whereas there are only 47,000 sales tax registered persons. There are more than 3.1 million commercial electricity connections, while more than 90 per cent of them are outside the tax system,” he said.

In a letter to prime minister, Shabbar Zaidi had acknowledged that the tax burden on manufacturing sector is enormous that he wants to lessen it by bringing more people in the net. Zaidi said some businessmen want to take other benefits by exploiting the CNIC condition

What is at stake for FBR

An analysis of 35 sectors by the FBR from July 2014 to March 2019 revealed that about 40% of the total sales of these sectors were to the unregistered persons, which was causing evasion of both the income tax and the sales tax.

Out of 35 sectors, more than half of the sales of 17 sectors were to the unregistered persons.

These sectors are sugar, beverages, automotive, ghee, electric goods, cement, food processing, leather products, iron and steel, plastic products, fertilizers, poultry and animal feed, paints, glass, fruit juices, cosmetics, soaps, ceramics and agriculture goods.

The FBR estimated the total sales of 35 sectors at Rs12.6 trillion and Rs5 trillion or 39.4% were to the unregistered sectors during this period. The sugar sector sales were estimated at Rs713 billion and Rs521 billion or 73% were to the unregistered persons. The gas distribution sector sales have been estimated at Rs1.8 trillion and Rs496 billion or 28% were to the unregistered entities.

Another major source of revenue leakage was the sector of beverages and aerated water. The sector’s total sales amounted to Rs803 billion and Rs438 billion or 54.5% were to the unregistered persons.

The automotive sector’s total sales were Rs571 billion and Rs405 billion or 71% were to the unregistered persons. The ghee manufacturers sold Rs458 billion worth of production and Rs352 billion or 77% were to the unregistered persons.

The electric manufactures sold Rs327 billion or 47.5% of their production to unregistered dealers. The sector’s total sales amounted to Rs690 billion. The food processing sector had Rs303 billion sales and Rs228 billion or three-fourth were to the unregistered persons, according to the FBR.

The fertilizer and pesticides manufacturers sold 79% of their production to unregistered persons amounting Rs108 billion. The poultry and animal feed sold Rs85 billion worth of production to unregistered sector that was 90% of its total sales.

The cosmetics’ total production was Rs14.2 billion and Rs12 billion or 85% was to the unregistered persons. The FBR wanted to capture this 40% untapped sales through the CNIC but the manufacturers were not cooperating.

Online sales tax system not yet working

The Member Inland Revenue Hamid Attiq Sarwar had told the Senate Standing Committee on Finance that if manufacturers did not want to tell about those unregistered persons who purchased goods from them then they should not complain about the tax burden.

“The government’s hands are tied and it is not in a position to offer any concession on tax rates to five export oriented sectors or relax the CNIC condition because of the IMF programme,” he said.

Also, the FBR on Friday also transferred 503 customs officers occupying ranks of inspector, appraiser and chief appraiser who were serving on major stations.

The government has already transferred 3,150 officials of Inland revenue service of FBR.