FBR terms 17 percent GST rate very high

The Federal Board of Revenue has termed 17 percent standard rate of sales tax as very high which should be reduced and brought down to a reasonable level. Abrar Ahmed Khan FBR Member Reformed General Sales Tax (RGST) on Wednesday informed the National Assembly Standing Committee on Textile that the 17 percent sales tax is very high.
The rate should not be 17 percent and it should be on the lower side. Even those operating in the documented regime are not paying full amount of sales tax. Sharing key features of the revised Statutory Regulatory Order (SRO), FBR Member RGST informed the committee that the zero-rating facility shall continue to be available in registered regime to all categories of imports and supplies up to wholesale stage.
For local consumption, sales tax at reduced rate of 6% shall be charged on yarn and its by-products, while the finished products of the yarn ie grey cloth and subsequent products in the value chain like bleached cloth, dyed cloth and printed cloth shall be charged to sales tax at reduced rate of 4 percent, he said.
He further explained that the composite textile manufacturing units including wholesalers involved in making retail supplies shall charge sales tax @ 4% on their retail sales or sales to other retailers regardless to their registration. Such units shall not pay any upfront sales tax on their retail supplies, whereas all other retailers shall also pay 0.75 percent on their sales to consumers if their annual turnover is Rs 5 million and above.
Abrar Ahmad Khan said that the vendors of textile industry shall pay sales tax at reduced rate of 4% on processing charges in case their principals are not registered. He said that 43 new items have been included in the new scheme with a view to further save the five major export sectors from refund hassles. Although sales tax exemption has been withdrawn from capital goods, but the major five export sectors shall take refund within one week of the filing of their complete claim in respect of capital goods, maintenance parts, lubricants, packing materials and other specific items used by these sectors.
The hitherto non-compliant persons engaged in businesses in the said sectors have been given amnesty from questioning under the sales tax and Federal excise laws if they get themselves registered before June 30, 2011, FBR Member added. Abrar Ahmed Khan further highlighted that larger economic benefits are likely to accrue from the reformed zero-rating scheme on the aforesaid major five exports sectors. The exports will be further facilitated through ease in cash flow and sales tax shall be received on domestic consumption of the relevant sectors at reduced rates.
The economic documentation shall grow with eventual gains for income taxation. The refund payments shall be reduced thereby curtailing the opportunity of refund mal-practices. The scheme could be conveniently dovetailed with reformed GST in future. Undue use of sales tax zero-rating facility accruing under SRO 509(1)/2007 will not recur. Transfers of investments from grey to white economy shall be incentivised, FBR Member RGST added.
Giving background of the zero-rating regime, Abrar Ahmed Khan said that ever since the announcement of budget 2005-06, textile sector has been enjoying full zero-rating concession of sales tax. From July 1, 2005 to March 31, 2011, local consumption of textile products also remained zero-rated. The benefit of zero-rating was available on imports and local supplies in both commercial and industrial streams. The upfront zero-rating was granted to textile sector along with other major export sectors, ie carpets, leather, surgical and sports goods to facilitate exports from Pakistan because almost 80 percent of the products of these sectors are exported out of the country. Upto March 31, 2011, the zero-rating facility on textile was available under SRO 509(1)/2007.
However, in March 2011, two notifications SRO 231(l)/2011 dated 15.3.2011 and SRO 274(1)/2011 dated March 27, 2011 were issued restricting the concession of zero-rating only to registered manufacturers, manufacturer-cum-exporters and exporters for the purposes of exports only. However, on the recommendations of trade and industry the position was reviewed and a new scheme of zero-rating to five major sectors including textile has been introduced vide SRO 283(1)/2011 dated April 1, 2011, Abrar Ahmed Khan added.