FBR Proposes Reduction of Sales Tax Exemptions in Budget

FBR Proposes Reduction of Sales Tax Exemptions in Budget

PkRevenue.com – In a significant development ahead of the federal budget for 2024-25, Tax Managers from the Federal Board of Revenue (FBR) have put forward a recommendation to curtail sales tax exemptions.

According to reliable sources within the FBR, these recommendations follow a comprehensive review of the current reduced rates and exempted sales tax regime outlined in the Sales Tax Act of 1990.

The proposed changes stem from a detailed consideration process, culminating in a set of finalized proposals aimed at enhancing the fiscal framework for the upcoming budget. One of the key recommendations is to bring many goods currently exempt from sales tax under a reduced sales tax rate. This adjustment is intended to streamline the tax system and increase revenue, the FBR sources revealed.

In addition to reclassifying exempt goods, the tax managers are advocating for a shift towards a uniform sales tax rate for various items in the next fiscal year, the FBR sources said. This move aims to simplify the tax structure and ensure a more consistent application of sales tax across different sectors.

However, certain exemptions will remain intact due to governmental agreements. These include exemptions for diplomats, health and medical items, and foreign investments, notably Chinese projects. These areas will continue to benefit from their current tax-exempt status, reflecting the government’s commitment to honoring existing international agreements and supporting critical sectors, according to the sources in the FBR.

The FBR has conducted an exhaustive review of the zero-rated and sales tax-exempt items, aiming to expand the taxable base. This review has led to proposals for withdrawing sales tax exemptions from the local supply of numerous items. The proposed changes suggest imposing an 18 percent sales tax on many items that are currently taxed at a zero percent rate under the existing Sales Tax Act of 1990.

The sources further revealed that a significant number of items have been proposed for removal from the Sixth Schedule (Exemption Schedule) and the Fifth Schedule (Zero-Rated Schedule) under the draft Finance Bill 2024. These schedules currently list items that either enjoy full exemption or zero-rated tax status, and the proposed changes indicate a strategic shift towards a broader tax base.

This initiative is part of a broader effort by the FBR to enhance revenue collection and reduce tax discrepancies. By curtailing sales tax exemptions, the FBR aims to create a more balanced and efficient tax system. The recommendations, if implemented, will mark a significant shift in the tax landscape, potentially impacting a wide range of goods and services.

As the budget formulation process progresses, these proposals will be subject to further scrutiny and discussion. The final budgetary measures will reflect the government’s fiscal priorities and economic strategy for the year ahead, with a clear focus on enhancing revenue streams and ensuring fiscal sustainability.