Supplies to and from Fata, Pata: 10-12 percent sales tax rate likely

The government is likely to introduce a lower rate of 10-12 percent sales tax on the supplies made to and from Federally Administered Tribal Areas (Fata) and Provincially Administered Tribal Areas (Pata) in the budget (2012-13). Sources told Business Recorder on Thursday that the FBR and the Ministry of Finance are exploring possibilities of imposing a lower rate of 10-12 percent on the supplies made to and from the tribal areas.
In this connection, the FBR has proposed extension of the Sales Tax Act, 1990 and Federal Excise Act, 2005 to the tribal areas to bring non-tariff areas into the taxation regime. The applicability of the Sales Tax Act 1990 to the tribal areas would bring uniformity in the taxation across the country. The imposition of sales tax on supplies coming from the non-tariff areas to the tariff areas is major concern for the tax authorities. Some lower rate of sales tax should be introduced for the business activities taking place in tribal areas. A foolproof procedure is being drafted to check supplies to and from the tribal areas for sales tax purpose from next fiscal.
Sources said that the sales tax is applicable on import of items whether finally consumed in tariff areas or non-tariff areas. This has created problems for the traders of tribal areas as the Sales Tax Act has not been extended in such areas of the country. In case a lower rate of sales tax has been introduced in tribal areas, the distortion in the taxation system would also be removed by giving equal tax treatment to the industries located in tariff areas when compared with the industrial units in the non-tariff areas.
The goods produced in the industrial and manufacturing units of the Fata/Pata are subjected to tax in the territorial areas of Pakistan. Legally, there is no tax in case goods produced in the tribal areas are subsequently consumed in the same areas.
Practically, the goods manufactured by the units of tribal areas are being sold in the tariff areas of Pakistan. This has given a disadvantage to the industrial units operating in the documented regime with applicability of all kinds of taxes. If a lower rate of sales tax is being imposed on all kinds of supplies made to and from the tribal areas, strict enforcement would improve revenue collection from the tribal areas.