Manufacturers supplying imported raw materials without in-house consumption may face 3% value addition tax, default surcharge, and possible prosecution.
The federal government, through the Pakistan Budget 2026-27, has proposed significant changes to the tax treatment of imported raw materials and intermediary goods by introducing stricter provisions relating to the minimum value addition tax on imports.
According to an analysis of the Finance Bill 2026 by A.F. Ferguson & Co., the existing Twelfth Schedule of the Sales Tax Act provides a waiver of the 3% value addition tax on imports of raw materials and intermediary goods brought in by manufacturers for their own in-house consumption. The exemption, however, does not apply to specified categories of scrap.
Under the proposed amendments, manufacturers that import such goods under the in-house consumption facility but later supply them in the same condition without using them in their production process will be required to pay the previously waived 3% value addition tax.
In addition to the tax liability, such manufacturers will also be subject to a default surcharge.
The Finance Bill 2026 further tightens compliance requirements by targeting cases where importers avail the exemption based on a declaration that the goods will be consumed internally but subsequently sell the goods without any processing.
In such situations, if the quantity of goods supplied in the same state exceeds 50% of the total imports during a financial year, the manufacturer could face legal consequences.
According to the budget proposals, such violations may not only attract the recovery of the unpaid value addition tax and default surcharge but may also expose the manufacturer to prosecution proceedings.
The proposed measures are aimed at preventing the misuse of tax concessions available for industrial inputs and ensuring that exemptions are utilised only for genuine manufacturing activities.
The changes are expected to strengthen tax compliance and discourage the practice of importing goods under preferential treatment and subsequently supplying them without value addition.
If approved by Parliament, the new provisions will become part of the Finance Bill 2026 and take effect during the fiscal year 2026-27.
