The Karachi Chamber of Commerce and Industry (KCCI) has recommended that the rate of Sindh Sales Tax on Services (SST) should be in single digit with input tax credit facility made available while export oriented and struggling industries should be exempted from SST.
In its proposal for Sindh Budget 2018-19 the chamber noted that the context that the cost of doing business has surged exorbitantly with ever rising cost of utilities and inputs which has already eroded much of the profits of many sectors leaving negligible for business expansions.
It would be more appropriate to make the business environment more conducive for businessmen to go for expansions and attract more investments from other areas which would not only generate more revenues without raising taxes but also create new job opportunities for people. In contrast, several new taxes at different rates were imposed in the name of broadening of tax base on many new services in the previous Sindh budgets without recognizing the ground realities which created a host of difficulties in conducting business.
In order to rationalize the taxes KCCI proposes that all export oriented services or those which may face financial crunch due to additional tax burden of SST or in financial distress should be exempted from SST.
It is primarily the responsibility of govt to provide security to the businessmen. In the absence of safety of life and property, businessmen are forced to buy these services for themselves which adds an additional cost.
This expense is in addition to the already high cost of doing business which should not be taxed to further increase the burden. SST on security services provided by private security agencies is adjustable in other provinces while it is not adjustable in Sindh which has created an anomaly and making this business unviable in Sindh.
It is particularly emphasized that the indenters should be exempted from SST as they are not providing local services rather, export of service to foreign principals and paying 5 percent withholding tax to Federal Govt on such export earnings. Indenters work on very low commission rate and face fierce competition.
With this meagre income, they have to meet a lot of operating and travelling expenses to get business for Pakistan which brings in the much needed foreign exchange.
Sales Tax is an indirect tax required to be collected from the customer / buyer. In case of indenter, the customer being a foreign resident person, neither comes under the jurisdiction of SST, 2011 & nor can be bound to bear the sales tax required to be charged by the local resident person.
The level of compliance by companies, relating to this section, is believed to be quite low, and hence, there would be minimal revenue impact. In addition, this is creating a hindrance to documentation, which is against govt. policy.
The SST on indenters have been reduced from 14 percent to 3 percent in realization of the issue faced by the indenters however, it is proposed that this sector should be exempted for SST due to many valid reasons.
Moreover, it is in the national interest to facilitate exports in order to earn more foreign exchange.