The collection of sales tax at the import stage showed a nominal increase of 3.7 percent during 2008-09 due to slow down in imports. According to a FBR report on 2008-09 performance, sales tax on import is an important source of collection of federal taxes. It has contributed 44.9 percent, 28.4 percent and 19.9 percent in sales tax, indirect taxes and total federal taxes respectively during 2008-09.
The collection of sales tax has posted an increase of only 3.7 percent during 2008-09 mainly due to slow down in imports. The value of import during 2008-09 has exhibited only 8.5 percent growth. Another major factor, which has brought about reduction in the collection, was that crude oil was zero rated for sales tax purposes.
It implies that collection was being realised from import of crude oil before that date in the previous fiscal year and the zero rating was applicable right from the start of the FY 2008-09. A huge loss of collection of sales tax on imports ie Rs 17.5 billion has been recorded during 2008-09.
Like sales tax domestic, the receipts of sales tax on imports have also concentrated mainly in few sectors. Petroleum products alone contributed around 37.4 percent of overall collection of sales tax on imports. Similarly, ten major spinners including petroleum constituted 80.9 percent of the sales tax import.
Since petroleum is the major contributor of the sales tax on import, therefore, the collection of sales tax on import depends heavily on its growth in its collection. The collection of sales tax from this item posted a growth of only 2.4 percent mainly due to growth of 3.4 percent recorded in the import of petroleum products.
As pointed out earlier, a loss of Rs 17 billion due to zero rating of crude oil has adversely affected the collection of sales tax on imports. Similarly, around 20 percent decline in the imports of automobile has resulted into 32 percent reduction in the collection of sales tax. Unlike customs duty, the collection of edible oils has improved by 15.4 percent due to 8.4 percent growth in import of edible oil in 2008-09.
Since specific tariff rates are applicable to edible oil in customs duty against ad valorem rates in sales tax, therefore, their collection is incomparable. Double-digit growth has been recorded in the collection of sales tax import from iron and steel due to increase in imports. On the other hand, the collection of sales tax has declined in electrical machinery by 15.5 percent.
The major reason behind this decline has been reduction in the imports of electrical transformers, lighting or signalling equipment, telephone equipment, electrical filaments or discharge lamps etc. Similarly, despite increase in value of import by around 30 percent, the collection of mechanical machinery has come down by 7.7 percent. The decline in the collection is attributable to lesser collection mainly from consumer items especially air conditioners due to reduction in imports, the FBR report added.