The Federal Government of Pakistan has unveiled an extensive array of budgetary measures targeting the Sales Tax and Federal Excise frameworks for the fiscal year 2019/2020.
These reforms, spanning from relief measures to revenue enhancement strategies, aim to modernize the country’s fiscal infrastructure and promote equitable economic growth.
Relief Measures
The government has decided to expand the scope of exemptions in the Tribal Areas following the FATA/PATA merger, incorporating significant exemptions into the Sixth Schedule to the Sales Tax Act, 1990. This includes exemptions from sales tax on imports of plant, machinery, and equipment for installation in tribal areas, as well as for industrial inputs used by industries located there. Additionally, the supply of electricity to residential, commercial consumers, and industries established before May 31, 2018, will also enjoy tax exemptions, excluding steel and ghee/cooking oil industries.
In a move welcomed by many, the government has withdrawn the 3 percent Value Addition Tax on petroleum products and mobile phones, simplifying the tax landscape for businesses and consumers alike. Brick kilns will now be taxed at a fixed rate depending on their category, aiming to simplify compliance and increase tax collection from this sector.
Revenue Measures
The government has undertaken significant revisions to the Special Tax Procedures by incorporating items such as electric and gas appliances into the Third Schedule of the Sales Tax Act, 1990, ensuring the realization of full revenue potential. Furthermore, the controversial SRO 1125(I)/2011, providing for zero-rating of sales tax on inputs and products of five export-oriented sectors, will be rescinded to curb misuse and enhance revenue collection.
The rate of Federal Excise Duty (FED) on aerated waters is set to increase from 11.5 percent to 14 percent, reflecting the government’s intent to boost revenue streams. In addition, the taxation regime for the steel sector will undergo a significant overhaul by abolishing special regimes and introducing FED at 17 percent in sales tax mode.
Streamlining and Simplification
In an effort to streamline and simplify the existing tax framework, the government is set to rescind multiple SROs and incorporate them into the Sales Tax Act, 1990. This measure is aimed at reducing the complexity of tax compliance and enhancing the transparency of the tax system.
The government is also focused on improving the ease of doing business by proposing the issuance of sales tax registrations through an automated interface, eliminating the need for physical contact with tax officers. This is complemented by the introduction of biometric verification processes to be completed shortly after registration.
Enhancing Fiscal Responsibility
A notable shift in the policy framework includes limiting the scope of the Federal Government’s power to grant exemptions and zero-ratings. These changes are designed to foster a more disciplined fiscal environment and ensure that incentives are used judiciously to support economic objectives.
Conclusion
The fiscal year 2019/2020 budgetary measures introduced by the Federal Government represent a significant overhaul of Pakistan’s tax system. These reforms are expected to increase tax revenues, promote compliance, and streamline tax administration, reflecting the government’s commitment to fiscal responsibility and economic sustainability. As these measures are implemented, they are anticipated to have a broad impact on various sectors of the economy, supporting the government’s broader economic reforms and contributing to sustainable growth.
