The government’s Central Board of Revenue has announced that export oriented sectors are to be granted a cut in sales tax. The move comes after pressure from the Federation of Pakistan Chambers of Commerce (FPCC), which registered objections to the tax-dominated budget announced on 13 June.
The sales tax is to be reduced from 18 per cent to 10 per cent for textiles, leather, carpets and sports goods. Tax on the personal allowances of business executives is also to be reduced to 3 per cent. Analysts expect the moves to reduce government revenues by about Rs 6,500 million ($185 million). However economic adviser to the Prime Minister, VA Jafarey, said that the concessions will not lower revenues. The FPCC has argued that the reduction in tax on allowances will not decrease revenue as it will reduce the level of tax evasion. Analysts predict that any shortfall may be made up by higher gas or petroleum prices.
The 1996/97 budget aimed to reduce the budget deficit to 4 per cent of gross domestic product, in line with IMF targets.
An IMF delegation is due to visit Islamabad this month to appraise the budget and allow the continuation of the current standby credit (MEED 5:7:96).