ISLAMABAD
In a rare development, the PML-N government has started implementing taxation measures announced in budget through Statutory Regulatory Orders (SROs) prior to its approval from the parliament apparently to generate additional revenue to reach twice revised revenue collection target for outgoing financial year 2013-2014.
The Federal Board of Revenue (FBR) on Thursday implemented the budget proposal through SRO, charging sales tax at standard rate of 17 per cent against of earlier five percent on import of finished articles of five export oriented sectors, textile, leather, sports, surgical and carpet. Similarly, in another notification, the government has also enhanced the general sales tax on steel and its products. The government would charge GST on steel sector through electricity bills by enhancing rate from four to seven per unit. The aforesaid SROs were effective from June 4, 2014.
Contrary to it, the government would have to wait till July 1, 2014 to enforce taxation measures after getting approval from parliament. The FBR, in its Salient Features of Budgetary Measures 2014-2015, has also mentioned the effective date of implementing aforesaid proposals from the start of next fiscal year (1st July 2014). However, government did not wait for approval of Finance Bill from parliament and imposed it in the country.
Sources informed that government wants to generate additional revenue to meet the twice-revised revenue collection target of Rs 2275 billion by the end of June 2014. Therefore, the FBR is implementing the next year’s proposal from ongoing fiscal year through SRO instead of waiting for parliament’s approval.
Last year, the Supreme Court had ruled that the government had no legal authority to without approval by the National Assembly of related proposals made in the budget.
“The government desires to encourage exports. But at the same time, the facility meant from exporters should not extend to domestic sales, otherwise it will create distortions in the market. SRO 1125 (I) 2011 was issued in order to encourage the five major export-oriented sectors - textiles, leather, carpets, surgical and sports goods. However, under this SRO, even imported finished goods were enjoying concessionary rate of sales tax on imported finished goods of these five sectors sold in the local market against the standard rate. This was leading to distortion, evasion and malpractices. Accordingly, import of finished goods of these sectors are proposed to be charged to sales tax at standard rate, because they are meant for local consumption by affluent class and do not contribute to exports”, Finance Minister Ishaq Dar said in his budget speech.
“The government can issue any SRO related to Finance Bill prior to its approval from the parliament”, Shahid Hussain Asad, spokesperson of the FBR, told The Nation. He added that issuance of SRO has nothing to do with revenue collection target of the outgoing year 2013-2014.
It is worth mentioning here that FBR has to collect Rs 319 billion in remaining last month (June) of the outgoing fiscal year to reach the revised target of Rs 2275 billion by the end of June 2014. The government has revised twice its revenue collection target for the outgoing fiscal year, once from Rs 2475 billion to Rs 2345 billion and then to Rs 2275 billion. FBR has collected Rs 1956 billion in eleven months (July to May) of the outgoing financial year as against Rs 1685 billion of the corresponding period last year, showing an increase of over 16 per cent.
Later FBR issued a handout stating, “The Federal Government has delegated powers to issue and withdraw notifications under the relevant provisions of the Sales Tax Act, 1990 and the Federal Excise Act, 2005. The notifications in question could have been issued at any time during the financial year”. The present notifications do not impose any new taxation: SR0 420(I)/2014 dated 04.06.2014 only seeks to withdraw the concessionary rate of sales tax available to finished imported textile and leather goods (other than used and worn clothing). By this notification, the standard rate of sales tax (17%) has been made applicable.
Similarly, in case of SRO 421(I)/2014 dated 04.06.2014, the rate of sales tax applicable to steel melters, re-rollers and ship-breakers, etc. has been rationalized. The tax has not been imposed in excess of the standard rate of sales tax specified in section 3(1) of the Sales Tax Act, 1990.