Items sold in packing: FBR may propose 5-6 percent VAT

The Federal Board of Revenue may propose 5-6 percent Value Added Tax on the supply of consumer items, sold in packing, on which presently sales tax has been charged on the basis of printed retail price under the Federal VAT Act, 2010.
Sources told Business Recorder on Friday that 5-6 percent VAT may be charged on the supply of fruit juices and vegetable juices, ice cream, aerated waters or beverages, syrups and squashes, cigarettes, toilet soap, detergents, shampoo, toothpaste, shaving cream, perfumery and cosmetics, tea, powder drinks, milky drinks, toilet paper and tissue paper, spices sold in retail packing bearing brand names and trade marks and shoe polish and shoe cream.
Instead of charging standard rate of 15 percent VAT on consumer items, sold in packing, on the basis of printed retail price, a lower rate of 5-6 percent may be proposed. This would reduce the prices of items such as fruit juices, ice cream, aerated waters, cigarettes, detergents, shampoo, toothpaste, shaving cream, perfumery and cosmetics, tea, powder drinks etc after imposition of VAT. However, the final decision would be taken in view of analysing the revenue implications by the Revenue Advisory Council and the FBR.
Sources said there is a strong possibility that the government may introduce two different VAT rates from 2010-11. Sources said that the Federal VAT Act has abolished Third Schedule of the Sales Tax Act, 1990, which would bring items of the Third Schedule under the normal tax regime. Under the Third Schedule, manufacturers have to pay sales tax on all the stages of value addition of consumer items having printed retail price.
A number of dealers, distributors and wholesalers of these consumers goods are still out of tax net despite efforts to bring the intermediate linkages in supply chain into the taxation system and resultantly the tax actually chargeable at each stage on value addition is not being recovered. Under the existing arrangement, manufacture are paying sales tax of all the stages of value addition and only one printed retail price has been paid by the end consumer.
Under the Federal VAT Act, 2010, the manufactures will supply these items on ex-factory price and not on the basis of printed retail price. The wholesalers and retailers would have to pay tax of each stage under the VAT regime. The tax payment by the wholesalers and retailers would be missed unless these wholesalers and retailers are brought into the tax net.