Sales tax at zero percent rate; FBR rejects MNC's proposal on import, supply of tea

SOHAIL SARFRAZ

ISLAMABAD: The Federal Board of Revenue (FBR) has rejected a budgetary proposal of a leading multinational company to impose sales tax at the rate of zero-percent on the import and local supply of tea in budget (2012-2013).

Sources told Business Recorder here on Sunday that the FBR had received a proposal from top manufacturer of tea for sales tax zero-rating from 2012-2013. At present, standard rate of 16 percent sales tax is applicable on the commodity.  The budget makers have considered the proposal as unviable during the on-going budget preparation exercise. The major rationale behind rejection of the proposal is that multinational companies may not pass the benefit of the reduction in the sales tax to the consumers. It has been apprehended that despite proposed sales tax zero-rating on tea, the consumers would not be given any benefit. Resultantly, it is not viable to zero-rate sales tax on tea without giving any benefit to the general public.

In its presentation to the FBR, the multinational company has pleaded that the rising cost of tea and devaluation of rupees have sharply increased the government levies . Approximately, half the tea consumed in Pakistan is smuggled. A sustainable solution is to reduce the incentive to smuggle this commodity. The tea is the drink of the masses and deserves to be zero-rated for sales tax. As a result of this relief measure, the consumer price of tea will decline by Rs. 85 per kg.

Moreover, the tea is 50% more expensive than in India. The government levies account for half the difference, rest is due to freight and type of tea. Sales tax on tea is four times higher in Pakistan as compared to India. In Pakistan, the rate of sales tax is 16 percent whereas four percent sales tax is applicable on the commodity in India. Approximately, the price of tea per kg in Pakistan is Rs 606 as compared to Rs 400 in India, reflecting a difference of 52 percent. The price of tea excluding sales tax in Pakistan comes to around Rs 522 per kg against Rs 385 per kg in India, showing a difference of 36 percent. Thus, there is an immediate need for reduction in the sales tax on the import and local supply of tea to check large scale smuggling of the commodity, sources added.

Keeping in view past experience of cement and sugar etc, the FBR has found that the sectors obtain tax exemptions, but never pass on the benefit of reduction of taxes to the general public.