Tag: General Sales Tax

GST exemption on various goods may be withdrawn

Pakistan’s Federal Board of Revenue is likely to withdraw exemption and concession of general sales tax (GST) granted on many consumable items.

The consumption tax may be withdrawan on the supply of goods to generate an estimated revenue of Rs334 billion, news reports suggested.

The exemption of GST may be withdrawn on supplies of various local and imported goods. The exemption and concession of consumption tax may continue on basic food items.

The report suggested that Personal Income Tax (PIT), there are 11 slabs and one proposal under consideration is to bring down slabs to 6 or 7 where the minimum taxable ceiling of Rs0.6 million might be adjusted upward while the rate of higher-income brackets might be increased.

The hike in power tariff to the tune of Rs1.40 per unit might be notified after the agreement with the IMF.

Federal Minister for Finance Shaukat Tarin is expected to hold a meeting with the IMF’s Managing Director (MD) Kristalina Georgieva on October 15, 2021 in Washington, DC. However, things are still unclear whether Pakistan and the IMF will be able to strike a staff-level agreement or not. The review talks may be extended if both sides remained unable to strike any staff-level agreement on the completion of the sixth and seventh reviews under the $6 billion Extended Fund Facility (EFF).

Sources said that the IMF was advising stringent taxation measures but Pakistani authorities were making last-ditch efforts to convince the IMF for delaying taxation measures on account of withdrawal of sales tax exemptions and adjustment into Personal Income Tax till the announcement of the next budget 2022-23 or implementation of these steps in a staggered manner.

October 15, 2021
Salary income tax brackets to be reduced to five

KARACHI: The government is working on reducing the brackets of salary income tax to five from existing 11 besides reducing the income slabs, according to country report on Pakistan issued by International Monetary Fund (IMF) on Thursday.

Pakistan has assured the IMF to take major initiatives in the upcoming budget 2021/2022. According to the report the Pakistani authorities assured the IMF that in the next step of tax policy reform efforts and to further support fiscal objectives, the government will introduce both a general sales tax (GST) and a personal income tax (PIT) reform with the FY 2022 budget, yielding an estimated 1.1 percent of GDP.

The government may introduce change the existing tax rate structure by reducing the number of rates and income tax brackets from eleven to five and decreasing the size of the income slabs, with a view to simplifying the system and increasing progressivity.

The authorities further pledged to reduce tax credits and allowances by 50 percent (except for Zakat and those provided for disabled and senior citizens).

Besides, they also pledged to introduce a special tax procedure for very small taxpayers, aimed at preventing further tax base erosion and facilitating the formalization of the economy.

The authorities may adopt a long-term strategy to reduce labor informality and to bring additional taxpayers into the PIT net. This reform is expected to yield 0.4 percent of GDP on an annualized basis.

For the broadening and harmonizing the General Sales Tax (GST) base, the authorities assured the IMF through its Letter of Intent (LoI) signed by the finance minister and governor State Bank of Pakistan (SBP) that the government will advance the reforms to our GST system, underpinned by a unified tax base and within the confines of the current constitution.

The authorities pledged the following:

(i) to eliminate all zero-rated goods (Fifth Schedule), except on export and capital machinery goods and move them to the standard sales tax rate;

(ii) remove reduced rates under the Eight Schedule and bring all those goods to the standard sales tax rate;

(iii) eliminate exemptions (Sixth Schedule) excluding a small subset of goods (i.e., basic food, medicines, live animals for human consumption, education and health-related goods) and bring all others to the standard rate; and

(iv) remove the Ninth Schedule to replace a specific tax rate for cell phones with the standard rate. These reforms are expected to yield an estimated 0.7 percent of GDP on an annualized basis.

Moreover, the government is also in the process of harmonizing the service sales tax across provincial jurisdictions, with support from the World Bank, expected to be completed by end-June 2021.

April 9, 2021
Harmonizing general sales tax top priority: Hammad Azhar

ISLAMABAD: Federal Minister for Finance, Revenue, Industries and Production, Mohammad Hammad Azhar on Tuesday said that harmonization of general sales tax is priority area of the government.

Hammad Azhar, held a virtual meeting with Hartwig Schafer, Vice President South Asia Region, World Bank Group at the Finance Division.

The federal and provincial tax authorities are working out procedures for its smooth implementation, the finance minister added.

He expressed firm resolve of the government in implementing reforms under ongoing World Bank projects and thanked the Vice President for their continued guidance and collaboration.

The Finance Minister reiterated that the government is fully committed to implementing structural reforms, protecting social spending and boosting social safety nets in order to protect the vulnerable segments of the society.

Federal Minister for Economic Affairs Division Makhdoom Khusro Bakhtiar, Federal Minister for Energy Omar Ayub Khan, SAPM on Power Tabish Gauhar, Governor State Bank of Pakistan Reza Baqir, Secretary Finance Division, Secretary Power Division, Secretary EAD, Chairman FBR and senior officials participated in the meeting.

The finance minister appreciated the pivotal role being played by the World Bank in strengthening governance and service delivery through institutional reforms in Pakistan over the years.

The Federal Minister for Energy and SAPM on Power outlined the steps being taken to streamline the power sector, improving service delivery and serving the larger interest of electricity consumers.

They emphasized that the government is fully committed to make power sector dynamic and more sustainable.

The Federal Minister for Economic Affairs Division (EAD) lauded the World Bank’s IDA financing for the Crisis-Resilient Social Protection (CRISP) and other projects on the occasion.

The Vice President, World Bank appreciated the government’s relief initiatives to curtail the impact of COVID-19 pandemic effectively. The Vice President reiterated the World Bank’s continuous support to the Government of Pakistan during testing times.

The World Bank also acknowledged that a lot of progress has been made on implementation of structural reforms in various sectors. There is a need to keep up the momentum once the health crisis abates, he added.

April 6, 2021
Implementing full-fledged VAT regime in next two to four years decided

ISLAMABAD: The government has decided to implement full-fledged Value Added Tax (VAT) by eliminating General Sales Tax (GST) in next two to four years.

This has been decided at a meeting under the chairmanship of the prime minister held last month.

According to the minutes of the meeting, it was considered that VAT regime instead of GST needs to be gradually implemented within 2-4 years to enhance revenues, broaden tax base and assist in documentation of economy.

It is decided that the Federal Board of Revenue (FBR) will fully implement VAT regime for all business segments over next 2-4 years.

According to the roadmap for VAT implementation, the mechanism would be:

— Member Inland Revenue (Operations); focal steward for implementation of VAT Regime over next 2-4 years.

— Director General Input – Output Coefficient Organization (IOCO – IR) should be redesignated as DG IOCO & VAT Compliance – Functional lead for VAT Implementation.

— Commissioner Broadening of Tax Base (BTB) at each Regional Tax Office (RTO)/ Large Taxpayer Unit (LTU) would be responsible for business level implementation – Assistant Commissioner of respective RTO/LTU for Value Chain Evaluation and VAT Implementation.

— VAT would be progressively implemented across various segments commencing with 3rd Schedule products and gradually absorbing complex value chain products.

The meeting considered the implementation of VAT and decided enactment of VAT related legislation, rules and regulation if required.

For the purpose capacity building of FBR for absorption of VAT Regime would be undertaken.

It is also decided that time and resources for VAT assessment surveys of particular industrial/business segment. In order to implement the scheme successfully, the revenue potential of particular industrial segments would be assessed.

November 3, 2019
Pakistan assures IMF of strengthening taxation on real estate, agriculture income

KARACHI: Pakistan has assured International Monetary Fund (IMF) of removing distortion in taxation system and strengthening taxation on real estate and agriculture income.

The IMF on Monday issued country report on Pakistan after successful $6 billion loan program.

The report said that a large deficit would require aggressive revenue collection.

A multi-year effort will aim to revamp tax policy and tax administration. With less than 1.5 million taxpayers filing tax returns and tax compliance generally very low, tax policy and tax administration measures will center on broadening the tax base while maintaining a low tax rate, aiming to ensure progressivity of the tax system.

The country has agreed to increase additional 4 to 5 percent tax to the GDP by end of 3-year IMF program in order to bring Pakistan tax ratio in line with peer Emerging Markets.

Key measures include:

— Tax policy reforms

In the near term, measures include removing exemptions and preferential treatment to reduce distortions in the tax system and broaden the tax base.

These include the removal of General Sales Tax (GST) exemptions and preferential rates, except for basic food and medicines, a measure that will significantly improve revenues.

Greater inter-provincial harmonization and coordination of GST will also simplify filing procedures and increase compliance.

Overtime, the Pakistani authorities are committed to taking steps to transform the GST into a broad-based VAT and making the PIT fairer and more progressive by raising the upper-end of the PIT structure and consider eliminating Personal Income Tax (PIT) tax credits and deductions for the higher income brackets.

In addition, other tax policy measures include:

(i) further strengthening taxation on real estate and on agricultural turnover or income by provinces;

(ii) ensuring equivalent taxation of all sources of income; and

(iii) eliminating distortionary withholding taxes.

The report said that the tax administration reforms to bolster the authorities’ efforts to collect taxes.

“Implementation of a full, risk-based audit framework will be facilitated by the recent reversal4 of legal provisions limiting the use of tax audits and will be supported by an increase in legal penalties for noncompliance.

Moreover, licenses for the track-and-trace system for excises on cigarettes will be issued by end-September 2019 (structural benchmark), with a system roll out by end-March 2020.

The authorities are also considering options to make Pakistan’s tax administration less fragmented and more business friendly, including through the creation of a new semi-independent national tax authority to collect the main revenue sources.

Finally, the country has committed to not granting further tax amnesties (continuous structural benchmark).

July 8, 2019