ISLAMABAD: The Federal Budget FY12 will stipulate a three-tier sales tax system of zero, five and 17 percent, while maintaining the higher rates for certain specific industries such as telecom and steel melters, it is reliably learnt.
Food, education, medicines and agriculture crops will remain in the exempt sector; while the five major export industry - textile, leather, sports goods, carpets and surgical goods - will be subject to a fixed tax of five percent, until transition to a full value-added mode of sales tax system comes into operation.
The inputs of these five major export sectors will remain zero-rated and the present system of four & six percent sales tax on registered and unregistered units, respectively, will be merged into a fixed tax of five percent. Most of the businesses will continue to have their input and output tax adjustment at the rate of 17 percent.
Reduction of the sales tax rate to unified rate of 15 percent will only be possible after the provinces and the majority in the parliament agree to the imposition of RGST, whereby provinces allow the Federal government to collect sales tax on services on their behalf against a fee and the National Assembly passes the much-awaited RGST Act.
There are no major changes expected in the realm of customs duties other than removal of regulatory duty imposed in 2008 on what was then termed luxury goods. Except for enhanced regulatory duty of 10 percent on large cars of 1800cc and above components whose duties have been fixed by the Engineering Development Board (numbering around 14) all the rest will have the regulatory duties removed now because the balance of payment situation has considerably improved. In 2008, forex reserves had fallen to a dangerously low level due to non-adjustment of POL product prices by both the outgoing PML(Q)-led and the caretaker governments.
FED: Some changes in FED are strongly expected in cement sector. The FED on grey cement is expected to be reduced from Rs 700 to Rs 500 per ton while it will be totally eliminated on white cement. No change in excise duty is expected on cigarettes. However, the manufacturers will be allowed to raise prices of their brands - this step is expected to fetch FBR Rs 9 billion in additional revenue. The duty on filter rod of Rs 2 per rod is expected to be changed to 20 percent of ad valorem price.