ISLAMABAD: The federal government on Sunday significantly slashed the sales tax rate imposed on purchases from unregistered persons and retailers exempt from registration, dealing a massive blow to its own efforts to document the black economy.
The decision was taken alongside other ‘relief’ measures after the country’s trade bodies threatened to launch a countrywide strike from September 30. The move came less than 20 days after the International Monetary Fund approved a $6.7 billion bailout package, the continuation of which hinges on fiscal consolidation and widening the tax base.
Sales tax on purchases from unregistered persons was reduced from 17% to just 1%. The government also reduced sales tax on fabrics from 5% to 3%, following pressure from the owner of a leading franchise.
In addition to these measures, the government also withdrew the condition of making retailers’ submit their addresses, computerised national identity card number and national tax number with their withholding statement. The government also excluded hundreds of items it had earlier incorporated in the Sales Tax Act 1990, exempting producers from paying 17% tax on the items.
The government also reduced the amount required to be withheld by wholesalers, dealers and distributors from 20% of the total sales tax to 10% of the total sales tax, and withdrew the restriction of maintaining a record of local supplies for the issuance of refunds.
“The government has taken these decisions to accommodate the demands of the business community despite the difficult financial situation,” said Finance Minister Ishaq Dar following a meeting with the country’s top ‘economic wizards’ on Sunday.
The measures signal a retreat on steps announced by the Pakistan Muslim League-Nawaz government just three months back and exposes ill-planning on part of the authorities.