The Finance Bill 2025 has introduced a series of significant proposals to amend the Sales Tax Act, 1990, aimed at expanding the tax base, enhancing compliance, and curbing tax evasion.
If passed by the National Assembly, these amendments will take effect from July 1, 2025, and apply to tax year 2026. The changes, as compiled by PwC A. F. Ferguson & Co., focus on increased enforcement, digital transactions, and the rationalization of tax incentives.
Key Proposals in Sales Tax:
1. A major enforcement measure under the Finance Bill is the proposed introduction of a cargo tracking system. This real-time monitoring tool is intended to reduce sales tax evasion by closely tracking the movement of goods in transit across Pakistan.
2. To prevent underreporting and arbitrary cost adjustments, the adjustment of chilling charges for beverages, mineral water, and juices from the retail price will be restricted to a standardized 5% rate.
3. The Finance Bill 2025 proposes that the retail price for imported goods must be at least 130% of the customs-assessed value. This change aims to curb under-invoicing and ensure accurate collection of sales tax on imports.
4. In an effort to regulate the rapidly growing e-commerce sector, the Bill mandates that for digitally ordered goods within Pakistan, both the payment intermediary and the courier service provider will be held responsible for collecting and depositing sales tax.
5. The Federal Board of Revenue (FBR) will be empowered to control input tax adjustments. Using data from its risk management systems, the FBR can now defer or set caps on the input tax claimable by certain businesses.
6. Stronger enforcement measures have been proposed for non-registered entities. These include restrictions on bank operations, transfers of immovable properties, and the sealing of business premises—all intended to compel businesses to register for sales tax.
7. Notably, sales tax exemptions granted to the erstwhile tribal areas are being phased out, signaling a move toward tax uniformity. Similarly, the import and supply of solar panels, previously exempt, will now be subject to sales tax.
8. A two-tier appellate mechanism is proposed to be reinstated, streamlining dispute resolution. The pecuniary limits linked to appellate forums will also be abolished to allow for broader appeal rights.
9. The Finance Bill introduces additional oversight by empowering the Chief Commissioner of Inland Revenue to refer audit firms to the Audit Oversight Board in specific cases of misconduct or irregularities.
10. Additionally, procedures governing inquiries, investigations, and the compounding of offences by Inland Revenue officials will be rationalized to incorporate stronger checks and balances before any matter reaches the Special Judge.
In summary, the Finance Bill 2025 outlines a comprehensive overhaul of the sales tax system, targeting digital commerce, import valuations, and enforcement mechanisms, while withdrawing certain exemptions to create a more equitable and efficient tax framework.