Finance ministry and tax officials who have proposed the GST increase estimate that it will yield an additional revenue of about Rs25 billion. – File Photo

ISLAMABAD: The government is considering a proposal to increase the rate of general sales tax from 17 to 30 per cent for industrial and commercial users of electricity in the next budget to raise additional revenue.

Economic experts are of the opinion that the move will boost inflation because industries will pass on the increase to consumers. It will also increase the cost of production and may lead to closure of some industrial units and more joblessness. Finance ministry and tax officials who have proposed the GST increase estimate that it will yield an additional revenue of about Rs25 billion.

At present the FBR collects about Rs20 billion from GST on industrial and commercial users of electricity.

An official told Dawn that the International Monetary Fund had expressed concern over the government move at a recent meeting in Dubai. “IMF officials informed the Pakistani delegation that the proposed increase in the GST rate for industrial and commercial users of electricity would be inflationary and would have more political cost,” the official said, adding that it would be a difficult decision for the government.

He said the proposal, if approved by the federal cabinet, would affect 4.3 million industrial and commercial units whose production had already declined over the past few years because of power outages. The large-scale manufacturing sector has also been witnessing a negative growth for a few years.

But a senior FBR official said the move would help to get non-registered industries and commercial importers registered with the sales tax department. Already registered industries and commercial importers were getting adjustment of their tax, he added.

But some analysts are of the opinion that the registered industrial and commercial units will bear the brunt of the decision because the registered taxpayers will have to pay for those who were not registered.

The analysts suggested two slabs -- a lower GST rate for the registered users and a higher rate for the unregistered ones.

The proposed GST rate increase, according to tax officials, will make it unavoidable for the industries and commercial importers to get themselves registered with the department for claiming adjustment of 30 per cent GST. “Those who don't want to be registered will compromise on their revenue,” they added.

Meanwhile, an amount of Rs15 billion has been collected from industrial and commercial users of electricity under the head of withholding tax. They pay 10 per cent withholding tax on their bill and the government is considering to slightly increase the tax in the next budget.

There is a huge potential for revenue in these two sectors because 27 per cent of electricity is consumed by industrial units and seven or eight per cent by commercial users. Only one per cent of the two sectors is reported to be registered with the sales tax department.