ISLAMABAD: The federal government has announced various budgetary measures in sales tax and federal excise for fiscal year 2019/2020.
The budgetary measures pertaining to Sales Tax & Federal Excise are primarily aimed at:
01. Expansion in scope of exemption allowed in respect of Tribal Areas
To settle the post FATA/PATA merger scenario and to extend tax exemptions SRO 1212(I)/2018is being rescinded and exemptions are being incorporated in it in the Sixth Schedule to the Sales Tax Act, 1990.
Further, exemption from sales tax on imports of plant, machinery, equipment for installation in tribal areas, and of industrial inputs by the industries located in the tribal areas, is also proposed.
Additionally, supplies of electricity to all residential and commercial consumers, and to industries which were set up and started their industrial production before 31st May, 2018, but excluding steel and ghee / cooking oil industries.
02. Withdrawal of 3 percent Value Addition Tax on Petroleum Products and Mobile Phones
3 percent value addition sales tax is payable on all commercial imports. One of the exclusions from this levy is available to those petroleum products imported by oil marketing companies, whose prices are regulated. This exclusion does not cover furnace oil, which is being proposed now.
Secondly, it is proposed to exclude mobile cellular phones and satellite phones from purview of 3 percent value addition. This 3 percent regime is also proposed to be transferred from the Sales Tax Special Procedures Rules, 2007, to the new Twelfth Schedule to the Act.
03. FIXED SALES TAX ON BRICK KILNS
Brick kiln are proposed to be taxed at fixed rate as under
• Category A Rs 12,500 pm
• Category B Rs 10,000 pm
• Category C Rs 7,500 pm
04. REDUCED RATE OF SALES TAX ON FOOD SUPPLIED BY RESTAURANTS, BAKERIES, CATERERS ETC
In view of the undocumented nature of this sector and very low input tax for adjustment because of exempt food related inputs such as meat, vegetables, flour etc, there is disincentive to pay sales tax at 17 percent.
In order to encourage compliance, it is proposed to reduce the sales tax rate from 17 percent to 7.5 percent against which input tax adjustment will not be allowed.
05. REDUCTION OF RATE OF SALES TAX ON CONCENTRATED MILK (POWDER)
Presently, the sales tax regime on various forms of milk is uneven. Milk and cream, concentrated, and unsweetened / unflavoured is subject to a higher rate.
While the sweetened on enjoying exemption. It is proposed to rationalize the same. Both the categories are proposed to be taxed @10 percent
06. REMOVAL OF BAR ON EXPORT OF PMC AND PVC TO AFGHANISTAN
It is proposed that the SRO 190(I)/2002 may be amended to delete entries relating to PVC and PMC materials, and thus allowing zero-rating on export of these items to Afghanistan and Central Asian Republics.
07. WITHDRAWAL OF EXEMPTION OF FED ON INTERNET SERVICES AND FOREIGN SATELLITE BANDWIDTH SERVICE
Telecom services provided in Islamabad Capital Territory are subject to FED under the Federal Excise Act, 2005.
However, internet services are presently exempt from payment of FED under Third Schedule to the Federal Excise Act, 2005.
Similarly, bandwidth services are also exempted from payment of FED. In order to protect local services providers, it is proposed to withdraw exemption on services provided by foreign satellites and maintain exemption only on terrestrial bandwidth services.
08. REFORMING EXTRA TAX REGIME
Extra tax regime is being done away with and items like electric and gas appliances, foam, confectionary, lubricants( in retail packing), batteries, tyres / tubes etc are being moved to Third Schedule (retail price taxation) of the Sales Tax Act, 1990, to realize full revenue potential thereon.
09. ALLOWING ZERO-RATING ON SUPPLY OF TOBACCO TO EXPORTERS.
In order to facilitate the exporters of un-manufactured tobacco, it is proposed that the FED shall be charged at zero per cent on unmanufactured tobacco as supplied to a registered person / trader who intends to export the same subject to furnishing of necessary security.
10. EXCLUSION OF GOVERNMENT BODIES FROM PURVIEW OF EXTRA TAX AND FURTHER TAX
Further tax at 3 percent is chargeable on all supplies made to unregistered persons under section 3 (1A) of the Sales Tax Act, 1990. Similarly, under SRO 509(I)/2013 dated 12.06.2013, 5 percent extra tax is chargeable on electricity and gas bills from all unregistered industrial and commercial consumers whose monthly bill exceeds Rs. 15,000.
Since, such bodes are not the target of these taxes, it is proposed that Government / semi-government and statutory regulatory authorities may be excluded from purview of both these taxes.
11. STREAMLINING SRO 1125(I)/2011 REGIME
SRO 1125(I)/2011 provides for zero-rate of sales tax on inputs and products of five export-oriented sectors i.e. textile, leather, carpets, sports goods and surgical goods.
The objective was to resolve delay in refund payments. However, zero7 rating has created loophole and the benefit is being availed by unintended beneficiaries / non-exporters.
Reduced rates for finished goods is also harming revenues. Huge misuse of SRO on import of fabric and processed fabrics has been reported.
To streamline and prevent revenue leakage SRO 1125 is being rescinded.
SRO 1125 be rescinded, thus restoring standard rate of 17 percent on items covered under SRO.
The rate of sales tax on local supplies of finished articles of textile and leather and finished fabric may be raised from current 6 percent for integrated businesses, and 9 percent for others, to 15 percent and 17 percent, respectively.
Zero-rating of utilities (gas, electricity and fuels) allowed to these export oriented sectors through various sales tax general orders be withdrawn.
Refund of sales tax to these sectors be automated, thus ensuring that the sales tax paid on inputs is immediately refunded. Refund Payment Orders (RPOs) shall be immediately sent to SBP for payment as soon as these are generated.
Ginned cotton which is presently exempt is proposed to be subjected to reduced rate of 10 percent. In addition to above, it is also proposed to rescind notification No. SRO. 769 (I)/2009, dated 4th September, 2009, which grants zero-rating on import and supply of polyethylene and polypropylene for manufacture of mono filament yarn and net cloth, being similar in nature to SRO 1125, and that granting zero-rating to local supplies is to be discouraged.
12. INCREASE IN FED ON AERATED WATERS
In order to generate much need revenue, rate of FED on aerated waters is proposed to be increased from 11.5 percent to 14 percent.
13. RESTORATION OF NORMAL REGIME FOR STEEL SECTOR
Special Regime of taxation of the whole of the steel sector is being abolished Sales tax on billets, ingots, bars, ship plates and other long profiles may be exempted at manufacturing and import stage, and in lieu thereof FED at 17 percent in sales tax mode may be imposed for the reason that there is no exemption of FED for tribal areas.
14. RESTORATION OF NORMAL PROCEDURE FOR / INCREASE IN FED ON GHEE/COOKING OIL
In order to do restore normal regime, in addition to measures included in the Finance Bill, the following notifications providing for Rs. 1/ kg and Rs. 0.40 per kg rates are proposed to be rescinded.
Accordingly, it is proposed to increase rate of FED to 17 percent on edible oils / ghee / cooking oil
15. INCREASE IN FIXED VALUE OF GAS SUPPLIED TO CNG DEALERS
Since then CNG prices have been de-regulated and CNG prices have risen.
Further gas tariff has also been raised. In order to realize due sales tax from this sector, it is proposed to re-notify the value for sales tax on supply from gas distribution company to CNG dealers
16. INCREASE IN FED ON CIGARETTES
FED on cigarettes is levied on fixed rate basis. It is proposed to enhance the rates and redefine the thresholds by abolishing the third tier introduced earlier
17. CHANGE IN THE RETAILERS REGIME
To rationalize tax on retailers and to capture its full potential and document its sales, following proposals are made:−
(i) Turnover tax option may be withdrawn.
(ii) For tier-1 retailer, it may be made mandatory to integrate their points of sales (POSs) with FBR’s Computerized System so that the sales are reported in real time.
(iii) Retail shops having an area in excess of 1000 square feet may be included in Tier-1
(iv) In order to encourage customers to demand invoices from retailers, enabling provisions are proposed to be inserted in section 3 whereby FBR may allow cash back of up to 5 percent of the sales tax charged on invoices to the customers.
18. INCREASE IN RATE OF TAX ON SUGAR
Presently Sugar is subject to sales tax at 8 percent. In order to generate much need revenue, it is proposed that the sales tax rate on sugar may be enhanced to 17 percent.
19. REVIEW OF EXEMPTIONS UNDER SIXTH SCHEDULE
More items are being taken out of the Sixth Schedule and brought into the tax net if sold in retail packing and with a brand name like Frozen Sausages, meat if preserved, fat filled milk and cereals other than those of wheat and meslin
20. ADDITION OF GOODS TO THIRD SCHEDULE OF THE SALES TAX ACT, 1990.
After withdrawal of the extra tax regime, the finished articles like Foams and mattresses, Paints &varnishes, Electric and gas home appliances, Lubricating oils and Storage batteries will be placed in the Third Schedule
21. EXEMPTION OF COTTAGE INDUSTRY
Cottage industry is being redefined to include
(a) does note have an industrial gas or electricity connection;
(b) is located in a residential area;
(c) does not have a total labour force of more than ten workers; and
(d) annual turnover from all supplies does not exceed two million rupees
22. FED ON PACKAGED NON-AERATED SUGARY / FLAVOURED JUICES, SYRUPS & SQUASHES
In order to generate revenue and also to provide level playing field for aerated water which are proposed to be subjected to higher FED at 14 percent, is proposed that the non-aerated packaged sugary drinks, such as juices, syrups and squashes may be subjected to FED at 5 percent of retail price.
24. INCREASE IN FEDERAL EXCISE DUTY ON CEMENT
Cement is chargeable to federal excise duty @ 1.5 per kg. It is now proposed to increase federal excise duty on cement to Rs. 2 per kg.
25. INCREASE IN RATE OF FED ON LNG
Presently, FED is payable at Rs. 17.18 per 100 cubic meters. The rate is substantially lower and generates only Rs. 2 to 3 million annually.
Accordingly, it is proposed to to increase FED on LNG from Rs. 17.18 per 100 cu. m to Rs. 10 per MMBTU bringing it to same level as for local gas
26. INSERTION OF GOLD, SILVER, DIAMOND AND JEWELLERY IN EIGHTH SCHEDULE TO THE SALES TAX ACT, 1990 AT REDUCED RATE
It is proposed to introduce reduced rate/minimal tax rate of 1 percent on gold and silver.
Similarly, presently, jewellery is taxed on the basis of making charges only.
Based on regional models, it is proposed that gold in jewellery may be taxed at 1.5 percent, diamond at 0.5 percent and making charges at 3 percent, with input adjustment available only in respect of gold.
27. INCREASE IN SCOPE OF FED ON CARS
Through Finance Supplementary (Second Amendment) Act, 2019, FED on locally manufactured / assembled cars of 1700 cc and above was introduced @10 percent. Now, in order to rationalize this levy, it is proposed to enlarge the scope of FED and following slabs are being proposed:
• Cars from 0 to 1000cc 2.5 percent
• Cars from 1001cc to 2000cc 5 percent
• Cars from 2001cc and above 7.5 percent
28. THE SCOPE OF ICT SALES TAX ON SERVICES TO BE EXPANDED
It is proposed that services which have been subjected to sales tax by the provinces and are not included in the Schedule to ICT (Tax on Services) Ordinance, 2001, may be included in the Schedule and subjected to sales tax at standard rate of 16 percent under the said Ordinance. For clarity, it is mentioned that the services which are already being taxed under the Federal Excise Act, 2005, are not included in the services to be added to ICT law.
29. SPECIAL PROCEDURE FOR MARBLE INDUSTRY
Presently, sales tax is payable by marble industry under special procedure whereby sales tax is charged at Rs. 1.25 per unit of electricity consumed.
In view of low yield of this tax, it is proposed that special procedure may be done away with and standard regime of 17 percent be restored.
30. SIMPLIFICATION OF LAW AND REDUCTION IN NUMBER OF RULES / INSTRUMENTS DEALING WITH SALES TAX
Presently sales tax law comprises of multi-tiered legislation and sub-ordinate legislation which makes it difficult for taxpayers to comprehend and follow law and also for the sales tax collectors to implement the same. Hence, all the special procedures and redundant SROs are being abolished.
31. TRANSPOSITION OF SROS TO THE SALES TAX ACT, 1990.
In order to minimize SRO regime, some of the existing SROs are proposed to be transposed to the Sales Tax Act, 1990. These SROs, which are consequently proposed to be rescinded.
32. RESCISSION OF SROS ISSUED BY FEDERAL GOVERNMENT.
In view of various proposals presented in this summary, some existing notifications will become redundant, it is proposed to rescind these notifications
SIMPLIFICATION OF SALES TAX REGISTRATION – EASE OF DOING BUSINESS
It is proposed to issue sales tax registration, through an automated interface without any physical contact with the tax officers. Biometric verification shall be done within a month of registration through NADRA e-Sahulat centres.
33. DECREASING THE LEGISLATIVE BURDEN OF FEDERAL GOVERNMENT / CABINET
Cabinet Division has directed to propose amendments in the relevant statutes and Rules to replace the words “Federal Government” wherever possible.
Accordingly, both ST & FED laws have been scrutinized. Substantive powers may remain with the Federal Government, whereas procedural powers are proposed to be assigned to the Board .
34. LIMITING SCOPE OF FEDERAL GOVERNMENT’S POWER TO GRANT EXEMPTIONS AND ZERO-RATING
It is also proposed to similarly restrict the powers of the Federal Government to grant zero-rating under section 4, which presently has no such restrictions attached.
It is also proposed to omit provisions in section 4, which empower FBR to grant zero-rating on goods purchased by a person making reduced rate supplies.
35. CHANGE IN PROVISIONS RELATING TO WITHHOLDING
It is proposed to amend sub-section (7) of section 3, to provide that the rate or extent of withholding / deducting tax by the buyer be specified in the Tenth Schedule to the Act and the power to make rules be given to the Board.
36. SECTION 58 OF STA 1990 – ENABLING DIRECTORS ETC TO RECOVER PAID DUES
It is proposed to incorporate provisions enabling directors / partners to recover the paid amount from company, on the same pattern as already provided in Income Tax Ordinance, 2001.