ISLAMABAD: The Federal Board of Revenue (FBR) has proposed a standard rate of 18 percent sales tax on a wide range of zero-rated items and exempted goods including tractors, fertilisers, dairy and stationery items in budget (2024-25).

Sources told Business Recorder that the budget makers were considering to impose 18 percent sales tax on many items presently charged at the rate of zero-percent under the Sales Tax Act 1990.

The budget exercise is reviewing the entire list of zero-rated items and sales tax exempted items for the purpose of charging sales tax on them. Sales tax exemption has also proposed to be withdrawn on the local supply of many items.

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The final decision on the FBR proposals has yet to be taken by the government.

The health/medical items and foreign investment including Chinese projects would remain exempt under government’s agreements, sources said.

At present, stationery products and dairy items are subjected to sales tax at the rate of zero-percent. Some stationery items are also exempted from sales tax. The proposal is to withdraw sales tax zero-rating/exemption and subsequently charge 18 percent sales tax on these items.

Another proposal is to impose a lower rate of sales tax on these items but there is a strong likelihood to charge standard rate on these goods.

Sources said the FBR is also reviewing sales tax exemption on fertilizers as well as tractors, but final decision has yet to be taken.

Presently, Petroleum Crude Oil is zero-rated under the sales tax regime. If sales tax zero-rating is withdrawn from Petroleum Crude Oil, the item may be subjected to 18 percent sales tax.

The pesticides and their active ingredients, registered by the Department of Plant Protection, are exempted sales tax. If the sales tax exemption is withdrawn from pesticides, it would be subjected to 18 percent sales tax unless a lower rate is specifically notified for this item.

Similarly, sales tax exemption is applicable on the import and supply of iodized salt bearing brand names and trademarks whether or not sold in retail packing.

Sales tax exemption is also applicable on Liquefied Natural Gas (LNG) imported by fertilizer manufacturers for use as feed stock.

The government may retain sales tax zero-rating on supply to diplomats, diplomatic missions, privileged persons and privileged organizations.

Sales tax zero-rating may be retained on supplies of raw materials, components and goods for further manufacture of goods in the Export Processing Zones (EPZs) and imports or supplies made to Gwadar Special Economic Zone.

The imports or supplies for qualified under Foreign Investment (Promotion and Protection) Act, 2022 may be retained in 2024-25.

Sales tax exemption may be retained on goods imported by various agencies of the United Nations, diplomats, diplomatic missions, privileged persons and privileged organisations.

Sales tax exemption may continue on machinery, equipment and materials imported for EPZ.

Copyright Business Recorder, 2024