The Chairman of Federal Board of Revenue (FBR), Salman Siddique, informed the National Assembly Standing Committee on Finance on Friday that the government, through Sales Tax (Amendment) Ordinance, 2011, has levied 17 percent sales tax on tractors by omitting reference to "tractors" from the description of S No 69 of the Sixth Schedule to the Sales Tax Act, 1990.
Explaining the details of the Sales Tax (Amendment) Ordinance, 2011, Salman informed the committee meeting under the chairmanship of Fauzia Wahab that the agriculture sector contributes 21 percent to the GDP and employs 45 percent of total labour force. However, its contribution to tax is not commensurate with the size of the sector. Due to low tax-to-GDP ratio, which is around 9 percent, it had been consciously decided by the government to bring substantial agriculture sector income into the tax net. As the government faces hurdles to levy tax on agriculture income, sales tax was levied on major agricultural, inputs like fertiliser, pesticides, tractors and agricultural implements.
The FBR chairman said that prior to March 15, 2011, agricultural tractors were exempt vide S No 69 of the Sixth Schedule to the Sales Tax Act, 1990. The S No 69 before withdrawal of exemption was as follows: "Tractors, 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 purpose of exemption under the Customs Act, 1969 (IV of 1969)"in the Sixth Schedule to the Sales Tax Act, 1990, he said.
Tax authorities stated that the government through Sales Tax (Amendment) Ordinance, 2011, levied 17 percent sales tax on tractors by omitting reference to "tractors" from the description of S No 69 of the Sixth Schedule to the Sales Tax Act, 1990. The serial number 69 was later omitted by the Finance Act, 2011, thus withdrawing exemption of sales tax earlier available to bulldozers, combined harvesters and components in kit form. Moreover, exemption of sales tax earlier available to fertiliser and pesticides was also withdrawn by rescinding SRO 229(1)/2011, dated 15.03.2011. These fiscal measures will improve tax-to-GDP ratio of Pakistan which at present is lowest in the region, Salman added.