The new changes in the sales tax regime will benefit only the manufacturers and traders while the national exchequer will be on the losing side and the taxpayers will get no relief, said Ashfaq Tola – a leading tax expert.
He was talking with reference to the elimination of a practice that was aimed at not only documenting every stage of value addition but also fetched more revenues for the national exchequer.
Through Statutory Regulatory Orders (SRO) number 895 and 896, the government on Friday excluded dozens of items from the Third Schedule of the Sales Tax Act 1990.
According to the interpretation of the recent changes by Tola, the sales tax will be paid only at manufacturing stage while the distributors and retailers would go without paying sales tax.
Before introducing the drastic changes that also undermined the drive of documenting the economy, the manufacturer was paying 17% sales tax on the sale price of the product.
The wholesaler and distributor that used to procure supplies from manufacturers were paying 17% tax on the net value addition they made before selling the goods to the retailer. The retailer then was also paying 17% sales tax on his part of value addition.
With the exclusion of these items from Third Schedule, the manufacturers are no more bound under the law to print the maximum sales price on the product, which will also allow the retailers to charge prices of their choice.
The items removed from the Third Schedule include household electrical goods such as air conditioners, refrigerators, deep freezers, television sets, recorders, electric bulbs, tube-lights, fans, irons, washing machines as well as telephone sets and household gas appliances.
Other items deleted from the schedule are ovens, mattresses, auto parts, lubricant oils, tyres and tubes, storage batteries, arms and ammunition, paints, distempers, enamels, pigments, varnishes, gums, resins, dyes, glaze, tiles, biscuits and chocolates.
Ashfaq Tola, the senior partner at Naveed Zafar Ashfaq Jaffery & Co chartered accountant firm, said instead, the government had levied 2% value-addition tax on the amount of supplies made by manufacturers to wholesalers, distributors and retailers. Previously, sales tax rate on each stage of supply was 17%, he added.
Tola explained that contrary to media reports the government had not increased the general sales tax rate to 19% on range of items.
“With the promulgation of SROs, a stage-wise levy of sales tax has been eliminated”, he said.
Published in The Express Tribune, October 6th, 2013.