Budget 2019/2020: sales tax zero-rating abolished

Budget 2019/2020: sales tax zero-rating abolished

ISLAMABAD: The government has abolished sales tax zero-rated by rescinding SRO 1125(I)/2011 for export sectors. However, new mechanism of refund has been introduced which would be paid at the time of realization of exports.

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 To streamline and prevent revenue leakage SRO 1125 is being rescinded.

SRO 1125 be rescinded, thus restoring standard rate of 17 percent on items covered under SRO.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(gas, electricity and fuels) allowed to these export oriented sectors through various sales tax general orders be withdrawn.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.

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