The new tax measures are to be presented to Nawaz Sharif, Pakistan’s Prime Minister and, if approved, tax on domestic sale of textiles and leather products could double. The Government could also withdraw exemption from 5% withholding tax on electricity consumed by these sectors in a move to gain additional revenues from the next fiscal year.

Up until now, domestic sales of these export-oriented sectors have been are taxed at reduced rates. Sharif had already announced the grant of zero-rating tax status to the export sectors in the new budget and it is not clear whether he will endorse the FBR’s proposal.

The FBR is said to have proposed the introduction of a standard 17% sales tax on textiles, leather, carpets, sports goods and surgical instruments but, due to sensitivity of the issue and the influence of textile sector, the Government decided not to withdraw the concessionary tax completely.

There are fears that the capital cost of exporters will increase sensibly with higher tax rates being applied. Also, according to local media, any measures to increase sales tax on domestic sales could prove to be politically explosive as the Prime Minister is already under pressure over the Panama leaks.

Source: The Express Tribune