ISLAMABAD: With the compromise of traders on key documentation points just on eve of Azadi March, the government has literally agreed to forgo at least a revenue potential in the range of Rs70 to Rs100 billion from wholesale and retail sector.The wholesale/retail sector is contributing peanuts to national kitty on account of taxes despite possessing sizeable share in the range of 17 to 18 percent in the country’s Gross Domestic Product (GDP).It is yet to see how the IMF’s visiting review mission responds on this political compromise that would have far reaching negative impact on overall taxation system of the country.However, the FBR has come up with explanation on one important point of signed document whereby the top officials of tax machinery confided to The News that there would be no blanket exemption on size of shops up to 1,000 square feet from registration of sales tax at all. “We will come up with negative list for identifying a few sectors where this size of shops will not be used for registration of sales tax,” said the official.The FBR, he said, will only bring amendment to law where the limit of electricity bills increased from Rs0.6 million to Rs1.2 million for purpose of sales tax registration.The FBR’s analysis showed that the wholesale and retail sector contributed 18 percent into overall GDP but their contribution to Income Tax and GST stood at just Rs40 billion including Rs35 billion in shape of Income Tax and Rs5 billion as GST. Their revenue potential is estimated more than Rs500 billion but with low effective rate some economists estimated that the FBR agreed to forgo at least Rs70 to Rs100 billion by giving them message that the government would be lenient with them.On other hand, Pakistan’s leading economists have confirmed to The News on Thursday that the trader leaders tactfully exploited fluid political situation to get maximum benefits on account of documentation as well as foregoing revenue potential in the range of Rs70 billion to Rs100 billion on annual basis.However, the FBR high-ups do not agree to such estimates but they accept one point in their background discussions that the government had abandoned moves for ensuring sales tax registration at retail stage.One leading economist who had done his estimation told The News on Thursday on the condition of anonymity that the contribution of wholesale and retail trade stood at Rs7,000 billion into Gross Domestic Product (GDP). At import stage, its contribution stood at Rs1,500 billion so the remaining size at domestic stage hovered around Rs5,550 billion. There are 10 percent big retailers while 90 percent are small retailers. If average tax is taken at 5 percent, he estimated that the FBR had foregone with revenue potential in the range of Rs70 to Rs100 billion.Another economist said that the small traders contributed very little to the tax collection and this latest agreement might result in foregoing of Rs7 to 10 billion on per annum basis.One FBR official told this scribe in background discussion that the representatives of all industries were demanding of jacking up limit of electricity bill from Rs0.6 million to Rs1.2 million on the pretext that the electricity prices had gone up as the FBR had introduced this tier system almost five to six years back. With this increase in limit and in case of implementation on exemption from sales tax registration up to 1000 square feet it means that the FBR allowed more than one million retailers not to come into sales tax registration system.“This is the biggest compromise on documentation and revenue collection side,” said the official sources and added that the FBR also agreed to defer CNIC condition for next three months. The FBR made tall claims but surrendered with one move of traders when they threatened government to join Azadi march after which the government succumbed to the political pressure.The rate of turnover tax reduced from 1.5 to 0.5 percent up to Rs100 million for traders could be justified on the basis of this argument that there would be input cost incurred on it so the rate of 1.5 percent was on higher side.But if one goes by this argument, why certain input was not allowed to salaried class. For instance, the salaried person had to incur certain cost for reaching his office so there should be incentive on taxable limit up to that extent but there is no such incentives for voiceless salaried person but the retailers/traders use political clout to maximize benefits from last so many years.
from The News International - National https://ift.tt/2JFyu8N
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