Islamabad:
Pakistan said Thursday that the International Monetary Fund (IMF) had not allowed it to abolish the additional 4% sales tax during unregistered people and rather linked the abolition by an increase of a quarter of the sales tax plate.
The allegedly punitive additional tax of 4% is now a way to stay outside the tax net, because companies feel comfortable with the payment of additional tax, then recovery by prices, instead of being part of the tax net.
The IMF has rejected a proposal to abolish the 4% sales tax and asked to record 50,000 additional people first in the sales tax regime, said Dr. Hamid Ateeq Sarwar, a member of the Federal Board of Revenue (FBR), at a meeting of the Senate of funding committee.
Senator PPP Saleem Mandviwalla presided over the meeting, which was summoned to respond to the concerns of the business world and recommend solutions. Mandviwalla supported efforts to discourage tax evasion and widen the tax base.
There are hardly 200,000 people of sales tax registered, of which only 60,000 pays for tax, said Sarwar, who reaches the age of the retirement pension this week after having a splendid career in the FBR.
The government had introduced the additional tax to force people to enter the tax net, which is billed beyond the standard sales tax of 18%. However, companies have adopted the additional tax to consumers and avoided the net.
There have been animated discussions in the meeting between the FBR and the business leaders on the new punitive powers introduced into the budget. The military establishment has now intervened in this area after the traders observed strikes in Lahore and Karachi.
The Special Investment Facilitation Council (SIFC) has held a meeting this week to resolve the problems of FBR arrests and by withdrawing more than 200,000 cash expenses to business income. After the intervention, the FBR seemed to respond to real concerns of the business world.
The president of the Faisalabad Chamber of Commerce and Industry, Rehan Bharara, asked if the FBR had used its previous punitive powers, in particular the disconnection of electricity and gas supply.
Out of 380,000 industrial connections and 5 million commercial connections, only 5% were on behalf of the current Allotes, so they could not be disconnected, said Hamid Ateeq Sarwar.
The low collection of retailers remains one of the concerns, but the FBR made a surprising complaint on Wednesday before the Prime Minister Shehbaz Sharif which he obtained 455 billion additional rupees in the retail sector during the last financial year. The complaint requires an independent verification because it is to be feared that certain companies in the business sector are also included in the retail category.
FBR officials said that total income tax payments made by the retail sector during the year 2024-25 were in fact 617 billion rupees and that additional income tax was 455 billion rupees. They said that the RS617 billion collection included 316 billion rupees in the quarterly advances given by three categories, wholesalers, retailers, traders and certain companies.
The surprising of RS316 billion quarterly progress could be examined with critical lenses due to the very informal nature of the sector. FBR sources have told the Express PK Press Club that a loose definition of the retail sector had been used, which included certain companies in the business sector.
Representatives of the Karachi Chamber of Commerce and Industry (KCCI) again raised the issue of arrest powers and penalized the use of cash greater than 200,000 purchasing rupees.
Senator Anusha Rahman of the PML-N underlined certain gaps in newly approved tax laws, which could be exploited by taxes against the business world.
The Minister of State for Finance, Bilal Azhar Kayani, said that the Prime Minister had asked that the harassment of taxpayers is not tolerated at all costs and that the government was ready to take measures if a businessman is injured by the abusive use of arrest powers.
Anusha Rahman said that the recently approved law strengthens taxpayers’ arrest on “suspicion” and “reasons to believe”. She recommended that no one was arrested until the FBR has evidence of sales tax fraud.
Hamid Ateeq Sarwar said that the government could not change the law before the next budget, but these concerns would be dealt with by subordinate legislation by issuing an explanatory circular.
However, Pti Mohin Aziz senator said that the subordinate legislation could not replace the law.
The immediate changes to the tax laws would poorly reflect the permanent committees that have debated these modifications, the Parliament which approved the laws and the government that proposed them, noted Saleem Mandviwalla.
Sarwar has become hard on business leaders, saying that in the past two years, attempts have been made for enormous fraud for sales tax and the FBR recorded FRIs against these people. “If someone has a doubt, we can organize their meetings with these people in prison,” he said.
