In a bold and transformative move, the Federal Board of Revenue (FBR) is contemplating an extensive overhaul of the current sales tax framework for the fiscal year 2024-25.
This paradigm shift aims to expand the standard 18 percent sales tax rate to a broad spectrum of currently zero-rated and exempted commodities, encompassing sectors as diverse as agriculture, dairy, and educational supplies.
Emerging from recent media disclosures, fiscal policymakers are meticulously scrutinizing the exhaustive catalog of items presently shielded under the Sales Tax Act of 1990. The impetus behind this review is to recalibrate the taxation landscape, retracting numerous zero-ratings and exemptions that have hitherto provided fiscal leniency. A critical focal point of this initiative involves the local supply chains of these goods, which may soon witness the imposition of the standard sales tax rate.
However, this ambitious proposition remains subject to governmental ratification. Key sources indicate that specific exemptions, especially within the health sector and foreign investments—including Chinese infrastructural ventures—will persist, honoring pre-existing governmental accords.
Currently, stationery and dairy products benefit from a zero-percent sales tax, with some stationery items even enjoying full exemption. The FBR’s proposal seeks to nullify these fiscal privileges, thereby instituting an 18 percent tax imposition. An alternative under deliberation is the implementation of a reduced tax rate, though the preponderant inclination favors the standard rate imposition.
The agricultural sector, particularly fertilizers and tractors, is also under the FBR’s lens. The final verdict on these items remains pending. Notably, Petroleum Crude Oil, presently zero-rated, could be reclassified to incur the full 18 percent sales tax, should the zero-rating be rescinded.
Additionally, the tax-exempt status of pesticides, specifically those registered by the Department of Plant Protection, is under review. Revocation of this exemption would subject these agricultural essentials to the standard tax rate unless otherwise specified.
Moreover, iodized salt sold under brand names and trademarks, irrespective of retail packaging, currently enjoys tax exemption, a status that could be repealed. The same applies to Liquefied Natural Gas (LNG) imported by fertilizer manufacturers for use as feedstock, which is also on the docket for potential reclassification.
In a strategic move to maintain diplomatic goodwill, the government may preserve zero-rating for supplies to diplomats, diplomatic missions, and privileged entities. Similar considerations apply to raw materials and components destined for further manufacturing within Export Processing Zones (EPZs) and the Gwadar Special Economic Zone, alongside imports protected under the Foreign Investment (Promotion and Protection) Act, 2022.
United Nations agencies, diplomats, and privileged organizations could continue to benefit from sales tax exemptions on imports. Furthermore, machinery, equipment, and materials essential for EPZ operations are likely to retain their exempt status.
The FBR’s sweeping tax reform proposal, if enacted, portends significant fiscal ramifications, recalibrating the economic landscape and fortifying the national revenue apparatus amidst a complex global economic milieu.
