Supply of goods/services to government departments: only registered suppliers to be eligible

The Federal Board of Revenue (FBR) has decided that only registered suppliers, who are active taxpayers in FBR database and their names are in the Active Taxpayer List (ATL), would be eligible to supply goods/services to the government departments.

Sources told Business Recorder here on Thursday that the FBR will notify the decision following approval of Finance Minister Ishaq Dar. The FBR will not allow registered suppliers to supply goods/services to government departments in cases where the names of the suppliers are not in the Active Taxpayer List. Even though the supplier is registered with the sales tax department having Sales Tax Registration Numbers (STRNs) and his name is not appearing in the ATL, he would not be allowed to make supplies to government departments.

According to the sources, as agreed with the donor agencies, the FBR has to issue instructions to all government departments to make purchases from only registered suppliers who are also on ATL of Income Tax and Sales Tax wherever applicable.

Besides, it has been observed that to get purchase order from the government departments a large number of suppliers obtain sales tax registration but they do not comply with other legal requirements such as filing of returns, payment of due tax etc thus causing huge loss of revenue to national kitty.

It is pertinent to highlight that as per policy of the government the FBR is committed to broaden the tax base and improve tax compliance. To achieve this end, two major changes are required in procurement and payment procedure of the government departments.

Firstly, a condition may be inserted in the tender notice that only registered suppliers who are active taxpayers in FBR database (ATL) are eligible to supply goods/services to government departments.

Secondly, the payment to the registered persons may be linked to the active taxpayer status of the suppliers as per the FBR database. If any registered supplier is not on Active Taxpayers list his payment should be stopped till he files his mandatory tax returns and appear on ATL of FBR.

The proposed measures, apart from checking the tax default, would safeguard the government revenue and result in better tax compliance culture in Pakistan.

Copyright Business Recorder, 2015

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17 percent GST on specific sectors likely: social sector concessions to be retained

The government may impose 17 percent sales tax on some specific sectors and 5 percent lower rate of sales tax on a wide range of items/sectors in budget (2015-16) that includes different kinds of machinery/equipment, ginned cotton, poultry feed and lead supplied to manufacturers of lead batteries.

Sources said on Tuesday that the Federal Board of Revenue (FBR) has laid down principles for review of sales tax concessions under Statutory Regulatory Orders (SROs) to be phased out in budget (2015-16). The principles are concessions for socially sensitive sectors to be retained by incorporating them into Sixth Schedule to the Sales Tax Act.

Secondly, the concessions to all other sectors to be withdrawn by charging standard rate of sales tax over the next 03 years. In case the import value is less than or equal to Rs 30 million annually, sales tax concessions may be withdrawn with immediate effect.

One of the proposals under consideration is to convert status of zero-rating to the exemption on items such as dairy products; bicycles and stationary.

Five percent sales tax is under study on the poultry feed and cattle feed including their all ingredients except soyabean meal of Pakistan Customs Tariff (PCT) heading 2304.0000 and oil-cake of cottonseed falling under PCT 2306.1000; incinerators for disposal of waste management, motorised sweepers and snow ploughs and re-importation of foreign origin goods which were temporarily exported out of Pakistan are subject to similar conditions as envisaged for the purposes of applying zero-rate of customs duty (PCT 9918).

The government may impose 5 percent sales tax on local supply of reclaimed lead, if supplied to recognised manufacturers of lead batteries and ginned cotton.

Some sectors are proposed to be charged to standard rate of sales tax. Standard rate of 17 percent sales tax may be applicable on imports by Karachi Shipyard and engineering works Ltd; setting up of hotels, power generation plant, water treatment plants in Gwadar and machinery, equipment and other apparatus meant for mines construction or extraction phases.

The government may impose reduced rate of 5 percent sales tax on 10 sectors in coming budget. Five percent sales tax has been proposed on machinery and equipment for marble, granite and gem stone extraction and processing industries; plant, machinery equipment and specific items used in production of bio-diesel and imports for BMR of desalination plants, coal firing system, gas processing plants and oil and gas field prospecting.

Five percent sales tax is under study on items with dedicated use or renewable source of energy like solar, wind, geothermal etc; items for promotion of renewable energy technologies; imports for power generation through gas, coal, hydel, and oil including under construction projects and imports for power generation through oil, gas, coal, wind and wave energy including under construction projects, which entered into an implementation agreement with the GoP.

The government may impose reduced rate of 5 percent sales tax on imports for power generation through nuclear and renewable energy sources like solar, wind, micro-hydel bio-energy, ocean, waste-to-energy and hydrogen cell etc and import for power generation and grid station including under construction projects.

Items may be subjected to standard rate of sales tax included Soyabean meal; oilseeds meant for sowing; ginned cotton (imported); plant and machinery not manufactured locally and having no compatible local substitutes.

The government may impose standard rate of sales tax on directly reduced iron; items imported by call centres, business processing outsourcing facilities duly approved by telecommunication authority; proprietary formwork system for building/ structures of a height of 100 ft and above and its various items/ components like plastic tube, plastic tie slot filters/ plugs, plastic cone, standard steel ply panels etc.

Items under consideration for imposition of standard rate of sales tax included machinery and equipment for development of grain handling and storage facilities; cool chain machinery and equipment; machinery, equipment, materials, capital goods, specialised vehicles accessories, spares, chemicals and consumables meant for mineral exploration phase; construction machinery, equipment and specialised vehicles, excluding passenger vehicles, imported on temporary basis as required for the exploration phase; complete plants for relocated industries and machinery, equipment and other capital goods meant for initial installation, BMR of oil refining petrochemical and petrochemical downstream products including fibers and heavy chemical industry, cryogenic facility for ethylene storage and handling.

SRO 1125(1)/2011 extends concession of reduced rate of sales tax (2-5 percent) on specified raw materials, primary and intermediate inputs, finished goods to major sectors/ beneficiaries, ie, five export oriented sector including leather, textile, carpets, sports goods, surgical goods. These sectors may be charged to reduced rates of 5 percent adjustable; supply of electricity and gas to the registered manufactures of export goods may be charged @ 5 percent from existing 0 percent.

Copyright Business Recorder, 2015

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Much to do on the tax front

In his budget speech last year, Finance Minister Ishaq Dar had set the GDP growth rate target at 5.1pc, inflation at 8pc and the tax-to-GDP ratio at 11.5pc for this fiscal.

As the fiscal year comes to a close, inflation seems to be comfortably ahead of its target, but two other critical milestones remain significantly behind.The State Bank of Pakistan has forecast 4.3pc GDP growth rate, while the IMF has recently scaled down its projection from 4.3pc to 4.1pc on the back of lower inflation and poor large-scale manufacturing performance in the first 10 months. For next year too, the IMF has reduced its growth rate forecast from 4.7pc to 4.5pc.The Asian Development Bank, on the other hand, has forecast a 4.5pc growth rate for this year and 4.6pc for next year.

Finance Minister Ishaq Dar, when contacted, quite understandably, declined to give another forecast at the last moment, when the National Accounts Committee is expected to come up with its finalised provisional estimates today. The next year’s growth target is expected to be around 5.5pc, down from the previous medium-term target of 6.1pc.

Inflation during July-April 2014-15 at 4.8pc, and 2.1pc in April, has been the lowest in 12 years.

While the tax-to-GDP ratio has improved, thanks to the taking of repeated taxation measures over the past nine months to meet IMF benchmarks, it has remained short of the target. For example, the total tax revenue improved steadily from 9.9pc of GDP in FY13 to 10.4pc in FY14 and 11.2pc in FY15. The target for FY15 is 11.5pc.

The total tax revenue improved steadily from 9.9pc of GDP in FY13 to 10.4pc in FY14 and 11.2pc in FY15. The target for FY15 is 11.5pc

Likewise, the FBR’s revenue has gone up from 8.6pc of GDP in FY13 to 8.9pc in FY14 and 9.4pc in FY15. This is also behind the budgeted target of 9.7pc.

According to Dr Talat Anwar — the Planning Commission’s former adviser on macroeconomic and monetary policy issues — economic growth of 3.5pc per annum over the last seven years has increased unemployment and poverty, as the governments undertook two IMF programmes that resulted in a low growth trap due to typical stabilisation.

In an interview last week, he said the growth prospects, nonetheless, have improved owing to a significant decline in international oil prices and higher remittances. Yet, there is a strong need to switch from a stabilisation-oriented to a growth-oriented policy in the next budget to revive the economy and reduce poverty. Growth prospects can be improved further if the government implements structural reforms and overcomes energy shortages.

But more importantly, the government needs to promote growth along with equity. He said the country’s tax regime is highly distortive and inequitable, and benefits the rich and the influential.

While removing these distortions, the government would be well advised to introduce measures that curtail the growth of the undocumented economy and promote the formal economy, said Dr Anwar.

He suggested that the high corporate tax rate be reduced from 33pc to 29pc to encourage corporatisation and job creation. The customs duty on agricultural and industrial inputs and machinery should also be cut. A level playing field needs to be created by removing tax exemptions.

The economic growth of 3.5pc per annum over the last seven years has increased unemployment and poverty,

as the governments undertook two IMF programmes that resulted in a low growth trap due to typical stabilisation

— Dr Talat Anwar

He appreciated the government’s intention to phasing out trade-related SROs and move to a system with three slabs and 0-20pc rates, and suggested that the regulatory duty on luxury goods should be increased by 5pc. The SROs that allow concessions on sales tax for import of raw materials are being misused, and they need to be urgently reviewed and abolished.

Dr Anwar said it is important to broaden the tax coverage by bringing 3.2m qualifying wealthy citizens, according to Nadra’s database, into the tax net. It is high time to coordinate and support the provinces to bring agricultural income into the tax net, as well as to tax remittances at the receiving end.

More importantly, the distinction between the taxable incomes of the salaried and non-salaried classes should be removed and all incomes should be taxed at the same rate. However, the highest tax rate should be reduced to 25pc and the number of tax slabs should be slashed to three to make the taxation structure progressive.

Keeping in view the stock market’s high returns in 2014-15, the capital gains tax should be raised from 12.5pc to a uniform 17.5pc, and dividend income should be taxed at 12pc. Dr Anwar also advocated cutting the telecommunication sector’s tax rate by 5pc, as the segment faces the highest withholding tax in the region.

He said a withholding tax should be charged on the telegraphic transfer of foreign exchange from Pakistan. There is also a need to reform the urban property tax system to address the undervaluation of property in official documents.

He argued that the GST on the purchase of costly mobile and smart phones should be levied at 17pc, and zero-rating under sales tax should only be allowed for sectors whose products are mainly consumed by the poor. The federal excise duty on the cement sector should be lowered to 3pc on the retail price to boost construction, and the duty on international travel should be increased.

Dr Anwar said the government’s expenditure structure needs to be rationalised by merging several ministries and attached departments to save taxpayers’ contributions. Facilities like vehicles and housing for senior civil servants, judiciary, and military officials should be monetised and indexed with inflation, while transport pools should be completely abolished.

He said high-growth projects like those in energy should be prioritised in the development budget to create jobs. The throw forward in the PSDP should be decreased through alternate financing modes like PPP, BOO and BOOT.

The prime minister’s schemes for interest-free loans, business loans, free reimbursement for less developed areas, youth training and skill development scheme, and housing should be reviewed by independent experts to determine their future.

In the social sector, the allocation for education — both at the federal and provincial level — should be raised from the current 1.8pc of GDP to 2pc in the forthcoming budget, and the allocation for health should be increased currently from 0.7pc of GDP to 1pc.

Published in Dawn, Economic & Business, May 18th, 2015

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Budget 2015-16: government urged to focus on direct taxes

Speakers at Hamdard Shoora have urged the government to focus on direct taxes instead of indirect ones in the budget 2015-16 to minimise production cost and check inflation. During a sitting on “National Budget 2015-16 and Public Expectations,” the speakers also urged the government to give priority to the energy shortages in the budget and set aside funds to construct the Kalabagh Dam and have broader consultation with experts and intellectuals to finalise budget proposals.

The speakers then called for broadening the tax net, saying the government ought to play the role of facilitator for trade and industry in true sense so that with more industrialisation, more and more job opportunities might be created. They said the government is taking more loans to repay previous loans and in recent talks with the International Monetary Fund, assurances had been given for broadening tax base and withdrawing tax incentives.

They further said the government must announce concrete steps in the budget 2015-16 for poverty alleviation and should also take steps to check the menace of smuggling. Those who also shared their views were Saadia Rashid, Rahat Latif, Doctor Rafique Ahmed, Bushra Rehman, Absar Abul Ali, Umer Zaheer, Qayyum Nizami, Khalid Nasr, Rana Amir Ahmed Khan, Professor Ghazala Ismael, Shaista S Hassan, Iftikhar Majaz and Professor Naseer Chaudhry.

Copyright Business Recorder, 2015

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