Tuesday, 30 December 2014

Benefits withheld: Sales tax on petroleum products jacked up by 5%

In clear violation of the Supreme Court orders, the government on Tuesday increased sales tax rate on petroleum products from 17% to 22%, putting a 30% tax burden on consumers. The new rates will be applicable from January 1.
The increase in tax rate will fetch Rs48 billion on an annual basis, while the government has estimated minimum Rs20 billion additional income in next five months, according to a senior official of the Federal Board of Revenue (FBR).
Had the government not increased the tax rate, consumers would have got 50% additional benefits due to the slump in global oil prices this month. The International Monetary Fund(IMF) has asked Pakistan to take additional steps to mitigate the impact of the steep decline in tax collection by the FBR.
The FBR revenues are falling short of the target due to the continuous decline in oil prices, inefficiencies of the tax machinery, politically motivated tax concessions and lax enforcement of the existing laws.
Interestingly, the amount of Rs48 billion is just Rs10 billion higher than the amount the government doled out to various lobbies by using the forum of Economic Coordination of the Cabinet over the last five months alone. It gave Rs38.5 billion in benefits to sugar barons and the agriculture sector.
As against the standard sales tax rate of 17%, the government has set the GST rate of 22% on petrol, HOBC, light diesel oil, high speed diesel oil and kerosene, which is the fuel of the poor and used in a large quantity in the rural areas of the country. This has increased the tax burden on consumers by 29.4%.
To give effect to the controversial decision that may be prone to judicial scrutiny, the FBR notified the increase in sales tax rate. The FBR issued a Statutory Regulatory Order (SRO) – a legal instrument used to bring changes in tax rates.
The new petroleum prices will be announced by adjusting the increase in sales tax rate, according to an official of the finance ministry. This would deny consumers the benefits of declining global oil prices. The crude oil prices in the international market settled to five-year low of $57.88 per barrel on Monday.
The Supreme Court has barred the government from increasing burden on taxpayers through executive orders. In the human rights case No 14392, the top court disapproved undue hikes in utilities provided to people and in Iqbal Zafar Jhagra vs federation of Pakistan case declared levying of taxes through executive orders unconstitutional, said Dr Ikramul Haq, a lawyer in the SC and the International Tax Council.
The government, despite these cases which are binding under Article 189 of the Constitution, has been resorting to infamous SROs for levy of taxes, he added. “Amending of tax laws by way of SROs is not serving any useful purpose – this is not a solution to improve tax administration.”
Citing the apex court’s judgments, Dr Haq said taxation through executive orders was unconstitutional in view of Article 77 read with Article 162 of the Constitution.
Published in The Express Tribune

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