Harmonization of GST on services, goods can tap 87% potential revenue

The Federation of Pakistan Chambers of Commerce and Industry’s Businessmen Panel has appreciated the federal and provincial governments for their resolve to implement the much-needed single portal for filing sales tax returns, as harmonization of general sales tax on services and goods among the federating units can help tap more than 87 percent potential revenue which remains largely uncollected so far.

FPCCI Businessmen Panel Chairman Mian Anjum Nisar hailed the decision of the National Tax Council (NTC) to develop the portal, calling it the right decisions in the right direction for harmonization, involving agreement between the federal government and the provinces to apply the same rates for general sales tax (GST) on goods and services.

He said that the launching of single portal will cut the compliance cost for the taxpayers and help increase Pakistan’s rating on Ease-of-Doing Index, asking the FBR to also invite the detailed input from Provincial Revenue Authorities for development of single sales tax portal acceptable to all, besides also developing a standardized income tax return format, in consultation with the business community.

There is an urgent need of reforming and simplifying the taxation system with the consultation of real stakeholders, besides addressing the issue of double taxation through integration of provincial and federal government laws and harmonization of FBR and Punjab Revenue Authority.

The BMP Chairman suggested that taxes should be charged one time by any provincial or federal government, as provinces levy same kind of tax which the federal government has already imposed, escalating the cost of production and discouraging the registered manufacturers. He called for harmonization of Sales Tax and Income Tax laws, getting rid of conflicting provisions, suggesting enhancing tax base by automation. He demanded the government to improve tax structure so that business and investment could flourish in the country, as the existing tax structure discourages investment. He requested the government to focus on reducing tax rates and expanding tax base by bringing all exempted sectors into the tax net.

FPCCI former president said that high tariff of utilities and RD’s on raw material are also the factors discouraging exports. He said that coordination between the government and the private sector was vital for economic growth, proposing the government to develop policies that could provide conducive business environment in the country. He called for strict measures to stop illegal trade, as the smuggling is not only causing massive shortfall in revenue collection but also discouraging the legal businesses and documented economy. Majority of the people don’t want to get them registered and preferred purchasing of smuggled goods mainly due to high duties on legal import.

Mian Anjum Nisar said that only direct taxes can improve tax collection, as the existing tax system is heavily skewed toward indirect taxation. He said the sustainable solution to Pakistan’s problems lies in the structural reforms, as we can see very large inefficiencies in tax collection, which needs to be removed. So, the tax compliance must be improved and tax base should be broadened, which cannot be achieved with a single policy change, but by a systemic approach.

The FPCCI has already submitted its proposals to meet the challenges being faced by trade and industry. “We have been asking the Federal Board of Revenue to reduce the tax rates to help increase competitive edge of indigenous products in both local and global markets, as high tax rates provide incentives for tax evasion and corruption and results in high cost of doing business.”

He recommended that the current sales tax regime of VAT mode should be reviewed and incase enforcement is not possible it should be overhauled, to eliminate corruption and the negative financial impact on businesses due to delay in refunds and provide level-playing field to the organized sector. He said heavy reliance on withholding taxes is affecting the enforcement capabilities of the FBR administration, since majority of tax collections is through the withholding tax regimes and not through enforcement measures. He said that the National Tax Council needs further deliberation to work out an arrangement in a collaborative manner relating to harmonization of GST between the federal government and the provinces.

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