Government Trying To Develop Consensus

The Federal Board of Revenue (FBR) has informed the International Monetary Fund (IMF) that the government is engaged in extensive negotiations with political parities,

provinces and stakeholders to develop consensus on reformed general sales tax (RGST). Sources told Business Recorder here on Monday that the FBR has drafted an updated version of tax reform agenda for the IMF, taking into the latest developments in tax administration reforms.The FBR has said that extensive discussions are underway with the political parties and provinces to develop consensus on RGST. Efforts of the FBR in bringing the textile industry on board by imposing GST on the domestic supplies made by zero-rated sectors had proved successful. According to FBR, an expeditious refund system has been implemented since July 2010. Under the new system, the refund claims of manufacturers/exporters are processed online within 48 hours of filing of the refund claims. The system is being expanded to facilitate other refund claimants. The development of an electronic refund payment system is under process and is expected to be completed by June 2011. The FBR latest data showed that the FBR has issued 42,372 sales tax refund cheques worth Rs 34. 5 billion through centralised system from September 2010 to May 2, 2011 and 10,604 cheques worth Rs 11. 3 billion from September 2009 to May 2 2010. There is a significant reduction in pending sales tax refund claims since October 2010. The data showed that there is a reduction of 36 percent in the total sales tax pending claims and 53 percent reduction in claims up to Rs 25,000. Taking key measures on the structural reforms, sources said, the RGST would partially offset the increase in expenditure demands on account of floods, foregone revenue due to postponement of the RGST and remove inequities in the tax system. The FBR has taken taxation measures of Rs 53 billion including imposition of surcharge and withdrawal of exemptions on agricultural inputs like plant, machinery and equipment during current fiscal year. The additional taxation measures would generate Rs 28 billion and withdrawal of exemptions Rs 25 billion during last quarter of out-going fiscal year. The expected revenue during fourth quarter (April-June) 2010-11 due to additional measures included imposition of surcharge worth Rs 20 billion, increase in the rate of special excise duty (SED) from one percent to 2. 5 percent Rs 6 billion and withdrawal of special regime of assessable price of sugar for levy of the GST would generate Rs 2 billion in the last quarter of current fiscal year. The Board has also withdrawn some RGST exemptions and zero-ratings to remove distortions in the taxation structure. The withdrawal of sales tax exemption on fertilisers would generate Rs 8. 75 billion, pesticides Rs 0. 5 billion, tractors Rs 1. 75 billion, withdrawal of zero-rating on plant, machinery and equipment would generate Rs 6. 5 billion while restricting zero-rating to registered persons for exports sectors including textile, leather, carpets, sporting goods and surgical equipment would generate Rs 7. 5 billion in the last quarter of 2010-2011. Sources said that the basic objective of the tax reform agenda is systematic broadening of the tax base through an equitable tax system, taxing all incomes irrespective of source to attain sustainable tax revenues. The improvement in the compliance through improved monitoring and strict enforcement. Under the strategy to broaden the tax base, the FBR has identified new taxpayers through cross-matching of third-party information. More than 700,000 potential taxpayers have been identified with the help of Nadra database. The FBR has disseminated the information in 54,798 cases to the field formations. A total of 534,193 cases are under process of verification from Nadra and provisional assessment orders have been issued in 1100 cases and income tax demands involving Rs 861 million has been raised against the un-documented persons. In order to improve the tax compliance, the FBR has focused on sales tax and income tax non-filers and short-filers. There are about 50 percent corporate income tax non-filers and there is a gap of 24 percent between the registered sales taxpayers and actual filers of returns. The data further showed that risk-based audit has been introduced since October 2010 and 3577 audits have been completed. Resultantly, demands have been raised to the tune of Rs 42 billion and recovery of Rs 3. 2 billion has been made since October 2010. The latest data says that the stuck up arrears at the level of courts amounted to Rs 131 billion. Break-up showed that income tax arrears were Rs 83 billion, sales tax Rs 38 billion and customs duty arrears of Rs 10 billion, which were pending at the level of judicial fora. The FBR further said that the organisational reforms for integration and harmonisation of income tax and sales tax administration and laws and the creation of an Inland Revenue Services also bore fruit. On the customs side, the FBR is trying its level best to curb smuggling and under-invoicing through the Afghan Transit Trade. The Board is improving equipment support such as weigh bridges, container scanners and tracking posts to monitor movement of containers. The FBR will obtain financial guarantees equivalent to taxes releasable on cross-match of data with Afghan Customs. The improvement in valuation and re-shaping of duty structure would reduce arbitration.