Budget proposals 2014-2015: ICMAP suggests 12.5 percent sales tax rate

KARACHI: The Institute of Cost and Management Accountants of Pakistan (ICMAP) has suggested the tax machinery to bring down the sales tax rate initially to 12.5 percent in upcoming budget 2014-2015 and gradually reduce it to 10 percent in order to promote business activities.
ICMAP said that it would also provide relief to the common people who are hit by the rising inflation in the country.
It is believed that the reduction in sales tax rate will bring the following benefits: unregistered persons will opt to get registered so as to avail benefit of input adjustment; undocumented sector will come under the tax net; boost the economic activity; control rising inflation, especially of essential commodities; minimize sales tax evasion would result more revenue for the government.
At present, under sub-section (1) of Section 3 of the Sales Tax Act 1990, the sales tax is to be charged at the rate of 17 percent of the value of taxable supplies made by a registered person and on goods imported into Pakistan.
ICMA Pakistan has demanded that section 8(1)(ca) of Sales Tax Act, 1990 of “tax credit not allowed” should be abolished as it makes registered person liable for failure to deposit sales tax on the part of buyer.
It said that the provision is highly unreasonable as it makes the registered person (buyer) liable to ensure deposit of sales tax into the government treasury by the seller.
In this regard, the Lahore High Court (LHC) has already passed a judgment in DG Khan cement case that Section 8(1) (ca) of the Sales Tax Act, 1990 violates the constitution of Pakistan. Due to the reason, Federal Board of Revenue (FBR) may eliminate this section from the Sales Tax Act.
Currently, under Section 8 (1) (ca) of the Sales Tax Act, 1990, a registered person has not been entitled to reclaim or deduct input tax paid on the goods or services in respect of which sales tax has not been deposited in the government treasury by the respective supplier.
ICMA Pakistan has urged the government to eliminate section 8A of liability of registered person in supply chain because registered person should not be held liable for non-payment of sales tax by the seller.
In existing situation, under section 8A, a registered person (purchaser) has also been made liable in case of non-payment of sales tax by the seller of goods from whom the registered person has purchased. This provision is inequitable and discriminatory in nature as a person is penalized for an offence not committed by him. In fact, after verifying the seller’s status at the time of purchase, it is not the responsibility of the purchaser to monitor his future acts and offences.

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