- Rs2 trillion worth of sales tax fraud attempts seen in the previous year, several cases now under investigation, FBR officials tell Senate panel
The International Monetary Fund (IMF) has rejected a proposal by Pakistan to abolish the additional 4% sales tax on unregistered persons, linking its removal to a required expansion of the sales tax base, according to news reports.
During a meeting of the Senate Standing Committee on Finance, chaired by Senator Saleem Mandviwalla, FBR’s Member of Inland Revenue Operations, Dr. Hamid Ateeq Sarwar, explained that the IMF instructed that the government must first register 50,000 new taxpayers before revising the tax.
Sarwar said that the 4% additional sales tax, which was introduced to bring unregistered businesses into the tax net, has instead led to businesses avoiding registration while continuing to pass the cost onto consumers. As a result, despite the extra tax burden, many businesses remain outside the formal tax system.
During a meeting, FBR officials discussed the concerns over the new measures, which include the arrest powers granted to the FBR and a provision requiring the inclusion of cash purchases exceeding Rs200,000 in taxable income. These measures have sparked tensions with the business community, which argues that the regulations would encourage harassment and penalize legitimate transactions.
In response, Minister of State for Finance Bilal Azhar Kayani assured that the government would not tolerate any misuse of the new powers and would take action against any abuse. He further stated that amendments to the tax laws could not be made before the next budget, but the government was willing to address concerns through explanatory regulations.
FBR officials defended the new measures, noting that the previous year saw over Rs2 trillion worth of sales tax fraud attempts, with several cases now under investigation. However, concerns about the informal nature of the retail sector, along with the broad interpretation of the sector’s definition, remain unresolved, particularly regarding claims of Rs316 billion in quarterly advances from the retail sector.
The meeting also discussed ongoing issues with the taxation of retailers and the implementation of new tax laws. While some business leaders remain skeptical, FBR’s Sarwar emphasized that the government must continue its efforts to curb tax evasion and strengthen the formal economy.
