High sales tax rates causing inflation, promoting smuggling: FPCCI


ISLAMABAD – The Federation of Pakistan Chambers of Commerce & Industry (FPCCI) in its proposals for the ensuing Federal Budget has urged the Government to effectively use Sales Tax Scheme to broaden the tax base provided the standard sales tax rate is brought down to 7% non-adjustable and non-refundable to be collected at single stage at import and / or at manufacturing, except high tax earning sectors for the government viz POL, Energy, Telecom, Tobacco and Liquor.

The Proposal added, “In value added chain industry it may be collected at 0.5% at each stage of value addition. However, since a Single Digit Sales Tax rate would require a lot of time for massive amendments in the Sales Tax Act, 1990 therefore, in the meantime the standard Sales Tax rate may be reduced to 15% in V.A.T. mode at first stage and thereafter reduce it gradually at 1% annually”.

The proposal is a part of the FPCCI presentation being prepared under the Chairmanship of Syed Mazhar Ali Nasir, Senior Vice President, FPCCI and would be presented by the FPCCI to the high-upsof Ministries of Finance and Commerce and FBR for incorporation in the Federal Budget 2018-19 and to the concerned Standing Committees of National Assembly and Senate for seeking their support and recommendations.

The proposal argued that prevailing rate of Sales Tax at 17% in Pakistan is too high out of which its major part is refunded or adjusted and net tax in the kitty of government comes to around 5% to 6%. In Los Angeles, one of the richest state in USA, the sales tax rate is 9.25%; India, 13.68%; Indonesia 10% and in most of the Far Eastern Countries, it is between 6% to 8%.

The FPCCI proposal lamented that 17% sales tax rate and its procedure is mother of several ills and stands in the way of its full collection. Being a consumption tax, its high rate directly impacts inflation, promotes smuggling, encourages massive tax evasion and corruption



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