Karachi, August 7, 2024 – The Federal Board of Revenue (FBR) has been granted significant new powers to fix the value of items listed under the Third Schedule of the Sales Tax Act, 1990.
This development, introduced through the Finance Act, 2024, is expected to enhance the FBR’s ability to regulate and ensure accurate taxation of imported goods and taxable supplies.
The FBR outlined these changes in Sales Tax Circular No. 3, which provides detailed explanations of the amendments made through the recent Finance Act. One of the key provisions highlighted is the amendment to the first proviso of clause (46) of section 2 of the Sales Tax Act. This clause now explicitly empowers the FBR to determine the value of supply for any imported goods or taxable supplies specified under the Third Schedule, particularly those subject to sales tax at the rate of 18% of the retail price, as per clause (a) of sub-section (2) of section 3 of the Act.
Prior to this amendment, the FBR had the authority to fix the value of supply for any imported goods or class of supplies if it deemed necessary. However, the recent changes have broadened this power, allowing the FBR to set different values for various classes or descriptions of the same type of imported goods or supplies. This new authority ensures that the FBR can address discrepancies in valuation and prevent potential revenue losses due to underreporting or undervaluation of goods.
An example of how this power might be exercised is seen in the case of imported tea, a Third Schedule item. According to Sales Tax General Order (STGO) No. 104 of 2019, the FBR had previously specified that the importer of tea must pay sales tax on the retail price, which could not be less than 130% of the imported value of the goods, inclusive of assessed customs duties, excise duty, and other applicable taxes, excluding sales tax. This regulation ensured that the retail price reflected a fair and accurate value for taxation purposes.
With the new amendment, the FBR’s ability to fix the value of supply for Third Schedule items is further solidified. If the FBR deems it necessary to fix the value of imported items under this schedule, the sales tax may now be calculated at 130% of the value set by the FBR. This value would include customs duty, federal excise, and other applicable taxes, again excluding sales tax. The balance of the sales tax, based on the actual retail price, would be payable by the importer when filing their sales tax return.
The amendment is seen as a critical step towards ensuring greater accuracy in the valuation of taxable goods, particularly those that are prone to price manipulation or undervaluation. By empowering the FBR to set these values, the government aims to secure its revenue base while promoting fairness and transparency in the taxation process.
Tax experts and industry stakeholders are closely watching how the FBR will implement these new powers. The expectation is that this move will not only strengthen tax compliance but also deter practices that undermine the integrity of the sales tax system.
Businesses dealing in Third Schedule items are advised to stay updated on any further notifications or general orders from the FBR that may specify new valuations. The FBR has committed to working with industry players to ensure a smooth transition to this new regime and to address any concerns that may arise during its implementation.
The Finance Act, 2024, and the subsequent amendments are part of a broader strategy by the government to enhance the effectiveness of tax administration and ensure a more robust revenue collection framework. The FBR’s enhanced powers to fix the value of Third Schedule items mark a significant advancement in this ongoing effort.
