The Finance Bill 2022 has been implemented in Pakistan, and the Federation of Pakistan Chamber of Commerce and Industry (FPCCI) has identified multiple tax anomalies in the budget. These anomalies include custom duties, regularity duties, income tax, and sales tax. The FPCCI has stated that some features seem to have been inserted at the eleventh hour, thus lacking proper planning for execution. The Federal Board of Revenue (FBR) will have to issue explanations and clarifications once the collection process starts after the fiscal year begins.
The acting President of FPCCI, Shabbir Mansha, has stated that the turnover tax rate of 1.25% is very high and not bearable by the dealers and distributors, as they have a bare margin of around two percent. Such a high rate of tax percentage will not only discourage small businesses from registering for sales tax but also hinder the smooth running of businesses. Moreover, the withholding tax of 4.5% on local sales is hard to absorb by the business.
The current bill disallows an input tax claim of more than 90%, which should be withdrawn as it will negatively affect economic growth. The withdrawal of the CNIC/NTN condition for sales tax supplies is a positive change, and such changes shall be admired and encouraged. However, the Act needs to clearly specify that non-filers do not need to provide the CNIC in case of unregistered. Additionally, the deregistration from Sales Tax shall be made easier. The condition of prior audit before deregistration shall be excluded, to facilitate the exit after three years where the company, AOP or individual has been filing null returns for the past five years due to discontinuation of their businesses.
Furthermore, the disparities between raw material on import stage and that of commercial and industrial importers shall be addressed. The implementation of the fixed tax regime bill brings about many unanswered questions. Fixed taxes on small retailers will be charged with the electricity bill.
Conclusion
In conclusion, the tax anomalies identified in the Finance Bill 2022 by the FPCCI need to be addressed immediately. The high turnover tax rate, disallowed input tax claim, withholding tax, and other discrepancies can negatively impact the economy and small businesses. The changes made to the CNIC/NTN condition for sales tax supplies are positive, but the Act needs further clarity to benefit non-filers. Additionally, the deregistration from Sales Tax needs to be easier, and the disparities between import stages must be addressed. The implementation of the fixed tax regime bill raises more questions than answers, and small retailers will be charged fixed taxes with their electricity bill. Addressing these tax anomalies will positively impact the economy and promote ease of doing business in Pakistan.
