SRO.350(I) to have damaging impact on all compliant entities, says Iftikhar Sheikh

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President Karachi Chamber of Commerce & Industry (KCCI) Iftikhar Ahmed Sheikh, while referring to recent amendments in Sales Tax Rules 2006 through SRO.350 (I)/2024, stated that new arbitrary restrictions have been imposed on various categories of entities registered in Sales Tax Regime without taking the stakeholders on board which will have a damaging impact on compliant entities across the board without giving any consideration to specific nature of business and sectors.

In a letter sent to Chairman Federal Board of Revenue Malik Amjed Zubair Tiwana, President KCCI, while urging the FBR to review amendments, pointed out that Rule 5, Sub-Rule (2) requires the registered individual, AOPs and a company having only one shareholder to submit balance sheet indicating amount of business capital with corresponding assets in the bank which would create unnecessary complications in case of Commercial Importers, Trading houses and registered persons on ATL because all such entities already submit the balance sheets, bank statement and Wealth Statement to the FBR at the time of filing the Income Tax Returns, hence the FBR already has the required data.

He further noted that the amendment in Clause C sub-rule (4) requires the owners of above-mentioned entities to visit NADRA Sahulat center for biometric verification. “This is against the policy of Ease of doing business and unnecessary inconvenience. This condition should not be applied to regular filers of Sales Tax and Income Tax returns who are on ATL”, he added.

Iftikhar Sheikh further stated that Amendment in Rule 18, Sub-Rule (1) restricts the volume of Sales to maximum of 5 times the business capital of an entity but this rule has been made without understanding of business practices and ground realities.

“For instance, in case of commercial importers of raw materials, intermediate goods and finished goods, the suppliers extend credit by up to 90, 120 and even 180 days and the importers make payments at maturity date after selling the goods. Likewise, the Commercial Exporters also import raw materials and intermediate goods on Supplier’s credit. The volume of such imports and sales may far exceed the 5 times of business capital”, he said, adding that this amendment may, therefore, be removed from the Sales Tax Rules because it only creates a hurdle in business and is counter-productive to growth. 

He was of the opinion that commercial importers of raw material support Cottage and Small industries who do not have access to credit facilities with banks and procure raw materials from importers on credit.

President KCCI said that the justification provided for amendments made under SRO.350 was to curtail fake and flying invoice, whereas these measures will be self-defeating. The correct approach would be to rationalize the rates of Further Tax of 4 percent levied on Sales to unregistered persons which in fact is an incentive to issue Fake and Flying Invoices.

He advised to reduce rate of Further Tax to 1.5 percent for sales to unregistered entities which will discourage evasion and drastically curtail the fake and flying invoices resulting in full recovery of sales tax revenue to the FBR.

For other sectors such as Wholesalers and Retailers, Iftikhar Sheikh recommended that rate of Sales Tax may be rationalized and rate of WHT on local supplies be reduced from 4.5 percent to 1 percent which will help to broaden the tax base and curtail fake and flying invoices.

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