Tax Laws (Fourth) Amendment Bill, 2021: Nearly Rs350bn sales tax to be imposed, FBR tells Tarin

ISLAMABAD: The Federal Board of Revenue (FBR), Thursday, informed Finance Adviser Shaukat Tarin that the Tax Laws (Fourth) Amendment Bill, 2021 will impose sales tax of nearly Rs350 billion and remove distortions in the sales tax regime such as special tax treatments, lower rates, and zero-ratings.

However, on Thursday, the draft of the Tax Laws (Fourth) Amendment Bill, 2021 was not presented before the meeting of the Economic Coordination Committee of the Cabinet. FBR Chairman Dr Muhammad Ashfaq

Ahmed and his senior team of tax officials remained in the Ministry of Finance for two hours and briefed the finance advisor on the entries to be abolished under the Sales Tax Act, 1990.

The FBR has worked out that the sales tax exemption on the import of items under the Sixth Schedule of the Sales Tax Act, 1990 has caused revenue loss of Rs173.808 billion. The exemption under 6th Schedule on local supplies has a revenue impact of Rs156.134 billion.

The accumulative effect of these exemptions stood at over Rs330 billion.

The sales tax zero-rating under the Fifth Schedule to Sales Tax Act, 1990, amounted to around Rs13 billion. The sales tax exemption on mobile phones has a revenue impact of Rs27billion. Reduced sales tax rates has caused revenue loss of around Rs205 billion.

Proposed Tax Laws (Fourth) Amendment Bill: FBR seeks to slap 17pc ST on various items

On the issue of medicines, the proposal has been almost finalised to impose a 17 percent sales tax on the import of raw materials used in the manufacturing of medicines, but the local supplies of medicines (end-product) would be zero-rated.

During the review of the Bill 2021, it has been pointed out that the sales tax exemption would not be withdrawn on the import of currency notes, bank notes, shares, stocks, and bonds. Moreover, the 17 percent sales tax would be imposed on the stationery items and writing instruments.

Sources also revealed that the sales tax exemption would also remain intact on the personal wearing apparel and bona fide baggage imported by overseas Pakistanis and tourists under baggage rules.

The FBR has proposed to impose 17 percent sales tax on the items with dedicated use of renewable sources of energy such as solar and wind including solar PV panels; LVD induction lamps; SMD, LEDs, with or without ballast, with fittings and fixtures; wind turbines including alternators and mast; solar torches and lanterns, and related instruments.

The standard rate of 17 percent sales tax has been proposed to be imposed on the import of plant, machinery and production line equipment used for the manufacturing of mobile phones by the local manufacturers of mobile phones; laptop computers, notebooks whether or not incorporating multimedia kit and personal computers; sunflower and canola hybrid seeds meant for sowing and combined harvesters up to five years old.

Sales tax has been proposed on the import of live animals and live poultry; meat of bovine animals, sheep and goat; fish and crustaceans; eggs including eggs for hatching; live plants including bulbs, roots and the like; edible vegetables including roots and tubers; pulses; edible fruits; red chillies excluding those sold in retail packing bearing brand names and trademarks; ginger excluding those sold in retail packing bearing brand names and trademarks; turmeric excluding those sold in retail packing bearing brand names and trademarks; cereals and products of the milling industry; seeds, fruit and spores of a kind used for sowing; Cinchona bark, and sugar cane.

The government would also impose a 17 percent sales tax on the local supply of raw material and intermediary goods manufactured or produced, and services provided or rendered, by a registered person, consumed in-house for the manufacture of goods subject to sales tax.

Sales tax at the rate of 17 percent has been proposed on the local supply of fixed assets; single cylinder agriculture diesel engines (compression-ignition internal combustion piston engines); Sprinkler equipment; Drip equipment; Spray pumps and nozzles and match boxes may be subjected to

Sales tax has been proposed to be imposed on the goods and the raw materials, packing materials, sub-components, components, sub-assemblies and assemblies imported or purchased locally for the manufacture of preparations suitable for infants, put up for retail sale; bicycles; colours in sets; writing, drawing and marking inks; erasers; exercise books; pencil sharpeners; geometry boxes; pens, ball pens, markers and porous tipped pens; pencils including colour pencils; supply, repair or maintenance of any ship which is neither; (a) a ship of the gross tonnage of less than 15 LDT; nor (b) a ship designed or adapted for use for recreation or pleasure; supply of spare parts and equipment for ships and supply of equipment and machinery for salvage or towage and supply of equipment and machinery for other services provided for the handling of ships in a port.

Under the draft of the Tax Laws (Fourth) Amendment Bill, 2021, the 17 percent sales tax has been proposed to be imposed on the LPG; import of re-meltable scrap; silver, in un-worked condition; gold, in un-worked condition and articles of jewellery, or parts thereof, of precious metal or of metal clad with precious metal; incinerators of disposal of waste management, motorized sweepers and snow plough; plant and machinery not manufactured locally and having no compatible local substitutes; ingredients of poultry feed, cattle feed; re-importation of foreign origin goods which were temporarily exported out of Pakistan; plant, machinery, and equipment used in the production of bio-diesel; second hand and worn clothing or footwear; agricultural tractors; tillage and seed bed preparation equipment and post-harvest handling and processing and miscellaneous machinery and some other items specified in the Eighth Schedule of the Sales Tax Act, 1990.

Copyright Business Recorder, 2021