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Budget makers are reviewing a proposal to increase the standard rate of sales tax from existing 16 percent to 17 percent as a major revenue generation measure in Federal Budget (2013-14). Sources told Business Recorder on Thursday that the budget preparation exercise focuses on key revenue generation measures in sales tax, income tax and federal excise duty for 2013-14.
One of the major revenue generation proposals under study is to enhance the rate of sales tax from 16 to 17 percent. However, it yet to be finalised whether sales tax rate would be increased on selected items or across the board. In the budget meetings held on May 1 to 2 at the FBR House and Ministry of Finance, the proposal to increase the rate of sales tax was discussed. One percent change in the sales tax rate would have an impact of Rs 35-40 billion per annum. However, no final decision has been taken in this regard.
In budget (2012-13), the standard rate of 16 percent sales tax remained unchanged. The government had reduced higher rates of 19.5 percent to 22 percent sales tax to 16 percent on the import of around 79 raw materials/inputs at the time of last budget. The FBR had removed aberrations in rates of sales tax @ 22 percent and 19.5 percent to standard rate of 16 percent through rescinding of SRO644(I)/2007 dated June 27, 2007 vide SRO 594(I)/2012 effective from the June 2, 2012.
During budget (2011-12), the Board had reduced sales tax from 17 to 16 percent and abolished 2.5 percent special excise duty (SED). The reduction in the rate of sales tax from 17 to 16 percent caused revenue loss of Rs 35 billion and elimination of special excise duty had revenue impact of Rs 12 billion.

Copyright Business Recorder, 2013

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