Employers’ Federation of Pakistan proposes gradual reduction of sales tax to 9.0 percent

KARACHI: The Employers’ Federation of Pakistan has proposed that in order to bring down the sales tax on industrial inputs the rate be gradually reduced by 1.0 percent per annum to an eventual 9.0 percent.

According to Federation’s proposals sales tax duties are quite high at 17 percent, along with additional sales tax of 3 percent. The resulting high price of raw materials has pushed local suppliers and manufacturers to under-voice imports, often with official connivance.[the_ad id=”32940″]“Unjustified and ill-directed exemptions given to agricultural sector and inefficient mechanism of tax collection from real estate sector have exacerbated dependence on indirect taxes and surcharges. This is a pivotal point of our taxation policy,” the proposals noted.

Federal Board of Revenue (FBR) collects approximately 90 percent of the revenue from 10 major products. Federation therefore suggested bringing down the sales tax to single digit.

For the remaining regime, which contributes around 10 percent to the revenue collection, culture of input adjustment and carry forward of input tax must be abolished. Moreover, GST should be collected at a non-adjustable 5 percent rate.

The Employers’ Federation notes the prevailing 17 percent sales tax is too high, and being a consumption tax, it directly affects standard of living leading to tax evasion, corruption, and smuggling. The reduced GST will enhance economic activities and relieve the lower middle class.

Federation also proposed to devise an ingenious strategy to carry out smooth coordination with the provinces to ensure gradual increase of agriculture’s share in taxes.

Revenue collection by the provinces on agriculture income is negligible. The share of agriculture sector in Pakistan’s GDP is 19 percent but its share in taxes is only 1.0 percent, which shows weak administration at provincial level in this sector.

Employers’ Federation notes that a well-coordinated effort carries the potential to stimulate Rs400 billion to the provinces, which can be utilized for health, education and social services in the respective provinces and thereby take load off from industrial sector that is paying 59 per cent of taxes.

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