FBR pulls plan for sales tax relief to car assemblers

Published: September 20, 2019
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A staffer polishes Hyundai vehicles at a showroom in Goyang, South Korea, last month. PHOTO: REUTERS

A staffer polishes Hyundai vehicles at a showroom in Goyang, South Korea, last month. PHOTO: REUTERS

ISLAMABAD: The Federal Board of Revenue (FBR) has withdrawn at the eleventh hour a summary that it earlier moved to seek the federal cabinet’s approval for reducing sales tax liabilities of the monopolistic car assemblers in what is seen as a welcome development.

The board has also decided to improve monitoring of sales tax collection as this tax has turned out to be the most effective tool to enhance revenue collection in the current fiscal year.

FBR Chairman Shabbar Zaidi has directed the departments concerned to take immediate action against non-filers of sales tax returns for the July-August period. The share of sales tax in the total collection of taxes has sharply increased to 46% during July and August from the traditional level of around 38%.

The FBR on Tuesday withdrew the summary titled “Amendments to the Third and Twelfth Schedules of the Sales Tax Act 1990”.

It had been forwarded to abolish 3% value added tax on 32 imported products and charge lower taxes on sales of auto parts, tyres, tubes and batteries – used by the car assemblers. The summary was withdrawn the day the cabinet was scheduled to meet and discuss it along with other agenda items.

The FBR chairman told The Express Tribune that he decided that the three products being used by the car assemblers would be taxed at the maximum retail price. However, the FBR has kept unchanged its decision to abolish the 3% tax, which will be implemented subject to approval of the federal cabinet.

Car assemblers have been availing many tax concessions and are also protected from international competition, which has deprived consumers of the opportunity to buy imported vehicles at affordable prices.

One of the car assemblers is also lobbying to get the cabinet slot of special assistant to prime minister on industry, sources in the ruling Pakistan Tehreek-e-Insaf (PTI) told The Express Tribune.

Abdul Razak Dawood is currently the adviser to PM on commerce, textile, industry and investment.

In an earlier summary, it had been proposed to exclude imported storage batteries, auto parts, tyres and tubes from the retail price taxation. The goods are currently taxed on the maximum retail price under Third Schedule of the Sales Tax Act.

The Third Schedule authorises the FBR to collect 17% standard sales tax on higher retail prices instead of suppliers or manufacturers’ prices.

A senior FBR official said a new summary had been prepared to propose abolition of only the 3% tax. The 3% value added tax had been imposed on those imported products that fall within the Third Schedule and are taxed at the maximum retail price.

The finance ministry has sent the new summary for evaluation by the Cabinet Committee on Legislative Cases, which is headed by Federal Minister for Law and Justice Farogh Naseem.

The FBR’s revenue collection has fallen short of the target by Rs64 billion in first two months of the current fiscal year. During the two months, the FBR collected Rs579.4 billion and Rs265 billion or 45.7% of total taxes was collected on account of sales tax.

The share of sales tax is increasing at the expense of income tax whose contribution to the total taxes slipped below 33%. Indirect taxes are considered inflationary and regressive in nature.

The FBR chairman has issued instructions to field formations, telling them to stop leakages of sales tax and federal excise duty. He has directed them to initiate action against non-filers of sales tax returns, especially where registered persons have filed tax returns for tax periods of May and June.

After introduction of the Computerised National Identity Card (CNIC) condition for the purchase of over Rs50,000 worth of goods, the traders have refused to cooperate with the FBR.

The FBR chairman has also given directives for conducting the desk audit of registered persons. The FBR has instructed the field formations to start monitoring of persons and companies paying taxes under the Third and Eighth Schedules.

The chairman has also asked tax officials to target cement and beverages sectors in order to ensure maximum recovery of taxes and duties.

The suppliers who have filed nil returns just to remain on the Active Taxpayers List will also be targeted for improving tax collection, according to the instructions that the FBR issued on Wednesday.

An investigative audit must be conducted in cases where the registered persons show negative value addition or high input-output ratio, carry forward and low output tax.

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