Govt will pay ‘political cost’ for withdrawing GST exemption: FBR chief

Federal Board of Revenue (FBR) Chairman Dr Muhammad Ashfaq has said that the government “showed courage” and took the unpopular decision of withdrawing GST exemption in the wider interest of the country, but this has a political cost.

He said this while addressing a press conference at FBR’s headquarters in Islamabad. He told the media that in the supplementary budget, the government has only taxed some items in use of common people, burdening them with Rs2 billion. In addition to this, tax exemption on some items, including matches and salt, has been abolished, he added.

The FBR chief said that if the government leaves the International Monetary Fund’s (IMF) programme, only one budget would be presented. He said that the international lender demanded the imposition of 17 percent GST and said that the government should only facilitate people through subsidies.

He also said that in the past, whenever the IMF called for adjustments, the authorities would impose new taxes, but no one paid attention to policy-level changes as these were unpopular decisions.

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He added that the IMF’s key demand was the elimination of tax inequality, and the government’s focus is on the same as well. He further said that IMF has asked for retention of these taxes until revenue can be collected.

Hailing the government’s decision, Dr. Ahmed said that the reforms introduced through the mini-budget are “historic”. He said that these decisions were necessary for the economy and for documentation. If the government gets more revenue, it can provide more targeted subsidies, he added.

Speaking about taxes, he said that the government has increased the advance tax on the telecom sector from 10 to 15 percent with the approval of the cabinet. He also said that the mini-budget does not impose any taxes on local food and computer parts and the same applies to the special economic zones (SEZs). No tax was levied on some agriculture and textile items, he added.

Discussing tax evasion in the pharmaceutical sector, the FBR chief said that sales tax would be levied at the import stage and zero rating on medicines would be maintained, while tax refunds would be issued within a week. He said that prices of medicines should decrease by 15 to 20 percent.

He said that the government has also increased taxes on mobile phones over $200 and vehicles over 850cc.

Calling out lobbies in the automotive industry, he pointed out that these lobbies and groups have influence in different ministries. He added that there was no economic justification for giving tax concessions to the automobile industry given that the tax system had been under pressure for a long time.

Dr Ashfaq said that the IMF wants to eliminate loopholes in the tax system, and has demanded an increase of Rs700 billion in revenue. He said that the government is now withdrawing tax exemption of Rs343 billion which was given to various groups for 70 years because the rich benefited from them rather than the poor. He added that after the revenue collection increases, the government will gradually reduce the sales tax rate.

“The standard rate of sales tax will be reduced from 17 percent to 15 percent but now we have to rectify the existing loopholes in the system and reform taxation by eliminating policy-level discrepancies and contradictions,” he further said.