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IMF suggests 15 percent GST on computer items, machinery

ISLAMABAD (March 20 2003) : The International Monetary Fund (IMF) has asked the Government of Pakistan to impose 15 percent general sales tax (GST) on the computer hardware/software, specific machinery/equipment and extend GST regime brining real property and all services within the sales tax net.

The IMF has strongly recommended to the government's top tax managers to withdraw GST exemptions in the Sixth Schedule of the Sales Tax Act, 1990 pertaining to specific machinery, computer hardware/software, and levy GST on all services except residential rent, health, education and financial services.

The IMF also wants to allow input tax credit for sales tax payable on purchases or importation of all goods and services used in taxable activities, with the exception of food, beverages and passengers vehicles.

The mission opined that the scope of existing GST net could be considerably broadened making the government revenue base strong and stable.

The government could expand the GST sphere brining major professional services within the sales tax regime once the administration of current tax machinery was effectively revamped, the IMF added.

Sources said the withdrawal of GST exemptions required amendment in the Sixth Schedule of the Sales Tax Act, 1990.

The existing serial number 45 of the Sixth Schedule of the Sales Tax Act exempt computer hardware, including laptops, notebooks, PCs, mainframe and their peripheral units and parts thereof.

Presently, the Central Board of Revenue (CBR) is examining these proposals in the light of recommendations made by the Fund.

The IMF has also demanded of the government to enhance 2 percent turnover tax to 5 percent and increase 3 percent 'further tax' on sales to non-taxpayers.

The taxpayers other than manufacturers may deduct 3 percent of the value invoice obtained for purchases or importation of goods for their taxable operations in that period up to the amount of taxable turnover in that period.

The CBR should also restrict the amount that manufacturers may deduct for invoices obtained on purchases to 2 percent of the value of the purchase invoices, or 3 percent with a total deduction in any period not greater than 40 percent of the gross sales tax liability in that period, the IMF maintained.

To increase the sales tax registration, the mission has further proposed amendment in the law enabling the sales tax and income tax auditors to assess tax liabilities applying indirect methods of determination such as reconstructed income statements and presumptive criteria and to authorise the CBR to make an order for assessment of tax, penalty and additional tax on the basis of above-mentioned criteria.

On the issue of sales tax refund, the IMF has recommended to the tax authorities to simplify the sales tax refund rules by removing the distinct treatment of inputs incurred to stock and providing monthly refunds to exporters for the full amount by which input tax credits exceed output tax liabilities for that period.

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