KARACHI: The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has claimed that high rate of sales tax at 17 per cent is the root cause of corruption, high cost of doing business and inflation, besid es depriving the national exchequer of due revenue collection.

Unveiling the first-ever ‘shadow budget’, prepared by the apex body here on Monday, FPCCI President Zakaria Usman asked the government to bring down the sales tax rate to five per cent in the upcoming budget.

According to Federal Board of Revenue (FBR) statistics, the board, on average, collects between four and five per cent only in sales tax each year and rest of the amount goes into corruption through under-invoicing, flying invoices, rebate and fraud adjustments, Zakaria Usman pointed out.

He further stated that nowhere in the world sales tax was introduced at such a high rate of 17pc because this suddenly creates liquidity problem and also induces corruption at each stage of collection.

Most of the countries the world over, he further said, launched sales tax rate in a single digit and thereafter gradually increased it.

He further said that FPCCI’s budget proposals and shadow budget did not alter the status of exports which are exempted from sales tax but firmly suggested that all categories of local sales should pay five per cent sales tax.

Even after paying more towards corruption rather than government kitty, the business community constantly lives under fear of tax authorities, but after reduction in sales tax rate, it would reverse the situation and the government would start getting more revenue due to reduced corruption, he said.

FPCCI’s consultant on taxes Zeeshan Merchant said barring fertiliser industry, telecom, POL, beverage, natural gas and cement, which pay seven per cent sales tax, all other sectors of the industry on an average pay less than four per cent sales tax per annum.

He said that the textile sector on an average pays less than one per cent sales tax by contributing only Rs23 billion. But by reducing the sales tax to five per cent, textile which is the largest industrial sector could increase revenue to Rs190bn, he added.

He said when unregistered person sells his goods at cost against a person who is registered with sales tax department there is a big difference of 17pc, therefore, this attracts corruption in the form of flying invoices, rebate and adjustments. Therefore, Zeeshan Merchant strongly recommended that there should be ‘no input adjustment and no-refund,’ so that massive revenue leakages could be checked and blocked.

FPCCI Senior Vice President Shaukat Ahmed said if the government fails to implement the apex body’s ‘Shadow Budget 2014-15’ disparity between rich and poor would further increase and the middle class would be totally eliminated.