The Federal Board of Revenue (FBR) would be required to withdraw dozens of sales tax exemptions to implement the reformed general sales tax (RGST) in the coming budget (2011-2012). Tax experts told Business Recorder here on Thursday that the FBR has only withdrawn a few exemptions on fertilisers, pesticides, plant, machinery and equipment including its parts through rescinding statutory regulatory orders (SROs).
The sales tax exemption on agricultural machinery is still intact. Numerous other exemptions are still available under the Sixth Schedule of the Sales Tax Act 1990. Similarly, some exemptions granted through the SROs are also applicable to certain sectors.
Sources said that the sales tax notifications have granted exemptions to dairy products and stationery items through the SROs. These sales tax exemptions may be withdrawn by the FBR by rescinding the list of the notifications through which such exemptions have been allowed to different sectors. Other exemptions granted through the SROs include pharmaceutical products, CNG kits and cinematographic films. Besides, sales tax zero-rating and other exemptions granted through the SROs have to be withdrawn in the next budget to implement the RGST.
Recently, the FBR has rescinded the notifications to impose sales tax on fertilisers and pesticides. The FBR had rescinded SRO.564(I)/2006 whereby sales tax was charged on sugar at the rate of Rs 28.88 per kg. Now, the sales tax would be assessed on the actual market price of sugar. The rate of sales tax on sugar would remain unchanged at 8 percent.
The FBR has withdrawn sales tax zero-rating facility on plants, machinery and equipment by amending the SRO.549(I)/2008. The sales tax exemption has been withdrawn on fertilisers, pesticides and tractors. The FBR has also withdrawn sales tax exemption of input tax on agricultural tractors. The Board had also imposed reduced sales tax rates of 4-6 percent on the domestic supplies of zero-rated sectors from April, 1 2011 and benefit of SRO.283(I)/2011 (reformed sales tax scheme) would not be available to persons engaged in businesses other than the five identified export sectors.
Experts said that the approval of the Parliament would be required to rescind the sales tax exemptions allowed under the Sixth Schedule of the Sales Tax Act, 1990. The exemptions covered under the Sixth Schedule include computer software, aircrafts, ships, defence stores, bulldozers/combined harvesters and components, import and supply of fully dedicated CNG Euro-2 buses and other exemptions.
The exemptions available under the Sixth Schedule also cover live animals and live poultry, meat of bovine animals, sheep and goat, fish and crustaceans, edible oils and vegetable ghee, including cooking oil, on which Federal Excise Duty is charged, levied and collected by a registered manufacturer or importer as if it were a tax payable under section 3 of the Act, fruit juices, poultry feed and cattle feed, surgical tapes, currency notes, bank notes, shares, stocks and bonds, building blocks of cement including ready mix concrete blocks and ships of gross tonnage exceeding 15 LDTs, excluding those for recreational or pleasure purpose.
Sales tax exemption is also available on spare parts and equipment for aircraft and ships, equipment and machinery for pilotage, salvage or towage for use in ports or airports, equipment and machinery for air navigation. equipment and machinery used for services provided for handling of ships or aircrafts in a customs port or customs airport, bulldozers and combined harvesters; and components (which include sub-components, components, sub-assemblies and assemblies but exclude consumables) imported in any kit form and direct materials or assembly or manufacture thereof, subject to the same conditions as are envisaged for the purposes of exemption under the Customs Act, 1969.
The sales tax exemption of the Sixth Schedule of the Sales Tax Act also includes import and supply of fully dedicated CNG Euro-2 buses whether in CBU or CKD condition and goods/ services purchased by non-resident entrepreneurs and in trade fairs and exhibitions subject to reciprocity and such conditions and restrictions as may be specified by the Board.
Sources said that the exemption available under different Pakistan Customs Tariff headings of Chapter 99 of the Pakistan Customs Tariff is also available under the Sixth Schedule of the Sales Tax Act 1990. The sales tax exemptions are also available in the Table-2 (Local Supplies only) of the Sixth Schedule of the Sales Tax Act, 1990. In order to implement the RGST, the tax authorities would have to withdraw the sales tax exemptions available on local supplies as per Sixth Schedule of the Sales Tax Act.
The Board has the legal authority to rescind the notifications through which exemptions and zero-rating facility has been granted to different sectors. Under section 13 of the Sales Tax Act, 1990, the Federal Government may, by notification in the official Gazette, exempt any taxable supplies made or import or supply of any goods or class of goods, from the whole or any part of the tax chargeable under this Act, subject to the conditions and limitations specified therein. The Board may, by special order in each case stating the reasons, exempt any import or supply of goods of such description or class, as may be specified from the payment of the whole or any part of the tax chargeable under Sales Tax Act. The exemption from tax chargeable under sub-section (2) may be allowed from any previous date specified in the notification issued under clause (a) or, as the case may be, order made.
Beside exemptions, presently commercial importers are paying special sales tax @ 2% over and above the standard rate in lieu of subsequent tax on value addition. It is adjustable but not refundable. It is a kind of distortion in the sales tax regime which needs to be withdrawn, sources added.