Local supply of plants, machineries: Sales tax zero-rating withdrawn

ISLAMABAD: The Federal Board of Revenue (FBR) has withdrawn sales tax zero-rating on local supply of plant and machinery to Export Processing Zones (EPZs), duty-free shops, local supplies to exports covered under the Export Facilitation Scheme, and supply/repair/maintenance of ships and related equipment and machinery from January 16, 2022.

The FBR has issued circular number 6 of 2022, here on Thursday for the explanation of Important Amendments in Sales Tax Act, 1990, the ICT (Tax on Services) Ordinance, 2001 and Federal Excise Act, 2005.

The FBR said the zero-rating to crude oil, which was withdrawn through Finance Act, 2021 has also been restored from January 16, 2022.

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For the purpose of tax rationalization and broadening of tax base, while retaining exemptions on essential food items, basic healthcare and education, a number of exemptions from Table-1 of the Sixth Schedule to the Sales Tax Act, 1990 have been withdrawn.

The goods on which the GST at standard rate has been imposed can be broadly categorised as imported/branded food items or plant and machinery and industrial inputs.

Imported live animals/poultry, imported meat/uncooked poultry, imported eggs, imported seeds and various types of agriculture equipment, plant and machinery of green field industries are some of the items, which are now brought in to the standard regime.

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Through new insertion in Table-2 of the Sixth Schedule, local supply of food items such as cereals, meat, poultry, vegetable, fruits, eggs etc has been exempted from the levy of sales tax.

Similarly, supplies of locally-manufactured laptop and newspapers are also exempted. Exemption on local supply of sugarcane has also been provided. On the other hand, some of the existing exemptions available in Table-2 have been withdrawn on raw cotton, whey and sausages (sold other than retail packaging), match-boxes among others.

Furthermore, before Finance (Supplementary) Act, 2022, bread, sheermal, vermicillies, bun and rusk sold at all bakeries and sweet shops were exempted by virtue of SNo 7 of the relevant table. However, the said provision has now been amended, whereby, tax at standard rate has become chargeable on these items when they are sold in bakeries, restaurants, food chains and sweet shops falling under the category of Tier-1 retailers. Exemption to various plants, machinery and equipment, often involving huge tax expenditure, are available under Table-3 of the Sixth Schedule.

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Some of these exemptions have been withdrawn.

The FBR stated that the Eight Schedule to the Sales Tax Act, 1990, provides rates lower than standard rate of the GST and before the Finance (Supplementary) Act, 2022, a wide array of rates ranging from one percent to 16.9 percent were available under the said Schedule.

This caused distortion in the tax system.

The differential rates were difficult to administer and open to misuse. Eighth Schedule has now been streamlined and a number of reduced rates and concessionary regimes have been withdrawn bringing these goods under standard regime.

The rate of sales tax on cellular/mobile devices are specified under the provisions of Table-2 of Ninth Schedule to the Sales Tax Act, 1990. The rates of high-end mobile devices (exceeding $200) imported in CBU condition were chargeable to fixed sales tax ranging from Rs1,740 to Rs9,270 per device.

There was little justification for reduced rate on import of expensive/ high-end branded mobile devices. Therefore, tax @ 17 percent ad valorem has been introduced for imported mobile devices valuing more than US$ 200, the FBR added. The said changes in law and tax/FED rates are applicable with effect from January 16, 2022.

Copyright Business Recorder, 2022