Despite strong resistance from the entire business community, the government’s biggest documentation measure to provide Computerized National Identity Card (CNICs) numbers of the unregistered buyers would be retained in the coming budget (2021-22).
Top government officials told Propakistani that the Federal Board of Revenue (FBR) has received many budget proposals to abolish the said condition of the CNIC, as this condition remained unimplemented for the last many years. Most of the budget proposals from the organized and documented sectors talked about the abolition of the CNIC condition through the Finance Bill 2021. But the government cannot take away such major documentation measures. Therefore, it would continue in the next fiscal year 2021-22.
To broaden the tax base, the condition of CNIC was introduced in Finance Act 2019, since persons involved in the furtherance of taxable activity need to be captured through such measures. However, in order to ease compliance cost, the threshold was enhanced from Rs. 50,000 to Rs. 100,000.
The FBR has already expanded the scope of disallowance of input tax on account of non-mentioning of the Computerized National Identity Card Number (CNIC) of the buyer by the seller on the invoice required under section 23 of the Sales Tax Act 1990.
The condition of the CNIC from the unregistered buyers was made applicable from February 1, 2020, onwards, but not practically enforced by the Federal Board of Revenue (FBR).
The FBR officials believe the implementation of the CNIC condition would help identify the people operating in the undocumented economy.
“Almost all chambers and trade bodies have proposed to abolish the condition of the CNIC, but this policy measure cannot be withdrawn”, officials said.
The business community has proposed to the FBR to abolish the condition of the CNIC in the upcoming budget (2021-22).
However, so far, no such proposal has been finalized to abolish the CNIC condition through the Finance Bill, 2021.
A tax expert told Propakistani that the CNIC condition was impracticable as it could not cater to out of books transactions taking place whether on imports, local manufacturing, domestic sales or Afghan transit trade. The CNIC condition can only cater to those transactions, which are declared within the sales tax regime.
The CNICs of the un-registered buyers were sought only in cases of sales tax registered persons. The business transactions taking place out of the books cannot be catered for the CNIC.
Most of the transactions in the country are taking palace out of the books; these business transactions cannot be registered or catered for the CNICs condition.
The CNIC condition is not applicable in cases where the businessmen are not engaged in taxable activities.
In a country, where certain areas such as tribal areas are exempted from taxes, it is not practically possible to enforce the CNIC condition across the country, he explained.
The tax expert added that so far the condition was not practically enforced across the country. The under-invoiced goods, smuggled items, and other goods are ultimately sold at the level of retail outlets.
This stage needs to be captured for documentation purposes instead of seeking CNICs of buyers at retail outlets. The question of the CNIC does not arise in cases where the sales are not declared or not shown in the sales tax returns. The condition of the CNIC remained limited to the extent of sales declared/shown within the supply chain, the tax expert added.