- Amendments in the Sales Tax Act now requires businesses to obtain CNIC from buyers purchasing goods worth more than Rs. 50,000
- Overall Tax collection and GDP growth expected to take a hit as the economic activity slows down
In order to document the economy and bring undocumented into the tax system, the government has introduced an amendment in the Sales Tax Act which requires businesses (under Third Schedule of Sales Tax Act 1990) to obtain CNIC from buyers purchasing goods worth more than Rs. 50,000.
Although, the implementation of this provision has been postponed till August-2019, once implemented, this measure is expected to have a grave impact on the Industrial supply chain across the country. Moreover, there exists uncertainty regarding sales to Non-Filer persons which may include either a higher taxation rate for them or outright denial of business dealing with Non-Filers/Unregistered person or entities.
Supply Chain Disruptions
The requirement of CNIC by the businesses is already disturbing supply chain in various economic segments, whereby Representatives from Cement industry have rejected such measure.
A field source told a local Research House, that due to this measure average daily cement sales have fallen by 73% to 40,000 tons from 150,000 tons. The situation seems to be a grave as CNIC requirement is expected to result in significant disruption in the dealership network of different commodities and consumer goods sectors as large number of dealers and retailers are unregistered.
In this regard, Prime Minister and Government Officials have held meetings with the traders and Business Community which have been without any result. The traders’ Community has announced country-wide strike on 13th July 2019.
Higher Taxation for Unregistered Entities/Persons
As per amendments in the Sales Tax Act, companies are now liable to withhold 5% of gross supplies to unregistered persons. Moreover, for businesses supplying products in the ambit of Third Schedule of Sales Tax Act 1990 to unregistered persons will have to bear higher Tax liability effectively creating a blockage for businesses to deal with unregistered/Non-Filer persons.
Sectors under Direct Impact
In the broader economic perspective, the disruption in the supply chain will have a deepening impact on the economy. The economic output as measured by GDP growth is likely to get impacted as the economic activity will stagnate as the system adjusts to the new ways of doing business. The Tax collection is also expected to decline as Downturn in Economy will drive down revenue collection leading to budgetary deficits.
The sectors which are likely to get major hit includes Cement, Fertilizer and FMCGs as these are included in the Third Schedule of Sales Tax Act 1990.