Major revenue spinners of sales tax collection from domestic commodities/services were petroleum products, telecommunication services, natural gas, sugar, cigarettes, iron/steel products, services sector, automobile sector, electricity and beverages during July-March period of 2007-08.
The FBR data on commodity-wise sales tax collection on domestic consumption, issued on Tuesday, confirmed that 81 percent of gross collection (Rs 110.9 billion out of total Rs 137.8 billion) was generated by ten major revenue spinners during the period under review.
However, with the exception of two sectors, the rest of the commodity groups recorded fairly high growth, the most important being the petroleum sector, as the collection from POL products increased by 47 percent over previous year's collection. This increase is attributable to gradual de-capping of price effects of international prices increase and zero-rating of crude oil for sales tax at import stage which has left positive impact on output tax as input adjustment has decreased substantially.
The FBR has explained that crude oil imported by refineries was subject to sales tax at import stage which was later subjected to refund/adjustment claim at the time of domestic sales of its refined products. Since November 2007, the import of crude oil has been zero-rated for the purpose of sales tax. This measure not only improved the liquidity strength of the oil sector, it also improved the tax collection procedure. The tax is now being charged at sales stage. While the former has reduced to zero from January onwards, the general sales tax (GST) on domestic consumption has registered a sharp rise since then. However, despite the perceived 'revenue-neutrality' of this change, there has been a loss of revenue due to time lag between the import of crude oil and its processing and refining by the refineries, the FBR said.
A sluggish growth was recorded in GST receipts from natural gas mainly due to three reasons. Firstly, there had been a relatively low growth in GST payment by the leading supplier, holding 40 percent share in sales tax collection. The growth from this source declined from 20.6 percent to 5.7 percent during the comparable period of July-March.
Secondly, the occidental gas, which contributed over one billion of GST last year, withdrew from the market. Thirdly, Sui Southern Gas Company Limited (SSGC) claimed and received unusual refunds. Similar to electricity, the zero-rating of utilities for export-oriented industrial concerns is reported to be the reason for this claim.
The nominal growth in collection from sugar was partly due to reduction in sales taxable price. However, despite this, the overall contribution remained discouraging. Special audits are already underway to determine the real cause of this outcome in the light of current supply and demand position of the commodity in the country.
The significant growth of 18.4 percent in collection from cigarettes was consistent with projected estimates. Similarly, better collection from the automotive sector (motorcars/motorcycles and parts) was due to improved performance of part of the automotive and vendors' industry, even though the production of leading brands declined for various reasons. On this plea, the assemblers have been successful in achieving temporary suspension of WHT on cars.
A healthy increase in collection from iron and steel by 251.6 percent was largely because of the policy intervention whereby the sales tax is now being charged on the basis of electricity consumption at the rate of Rs 4.15/unit. The tax is being collected through the electricity bills by Wapda and KESC. This change significantly reduced the tax evasion which was common earlier on.
The collection from services saw a healthy growth which can be attributed to improved performance of airlines, media and courier services. The negative growth in collection from electricity was the expected outcome as FBR had opted for net rather than gross collection, thereby reducing the incidence of refund creation. The board collected Rs 2,801 million as sales tax from electricity during July-March 2007-08 against Rs 11,518 million, reflecting a decrease of 75.7 percent.
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