ISLAMABAD (Ayyan Eshfak):- The Federal Board of Revenue has said that the govt has decided to withdraw the sales tax exemptions on pharmaceutical industries and raw material because it was led to misused and revenue leakages.  

The Board has clarified the reasons and rational of the amendments made in supplementary finance bill.

According to the FBR, the Supplementary Finance Act 2022 has been approved for achieving broader economic and financial stability through sustainable economic growth through removal of distortions, broadening of tax base and documentation of economy.

According to the clarification, the Govt has made changes Federal Excise Duty (FED ) on the imported vehicles. The govt has demolished FED on the imported vehicle of cylinder capacity up to 1000 cc which was 2.5 percent earlier. The FED on imported vehicle of cylinder capacity if 1001 cc to 1799 cc has been increased from 5 percent to 10 percent, cylinder capacity 1800 cc to 3000cc, the FED has been increased from 25percent  to 30 percent and cylinder capacity exceeding 3001cc, the duty has been increased from 30 percent to 40 percent.

Likewise, the FED rates of local manufactured on assembled motor cars, SUVs were also changed. According to the FBR, the locally manufactured or assembled motor cars, SUVs of cylinder capacity up to 1300cc, the FED will be 2.5 percent, earlier, zero FED was on upto 1001 cc and 2.5 percent on 1001-2000cc. Vehicles of cylinder capacity 1301 to 2000cc, the FED has been increased from 2.5 percent to 5 percent.  The FED on the vehicles of cylinder capacity 2001cc and above has been increased by double from 5 percent to 10 percent.

The FBR said that the zero-rated regime at import stage is introduced for drugs registered under the Drugs Act, 1976. Pharmaceutical goods and their raw materials were earlier exempt from Sales Tax; as a result, most of the supply chain was undocumented.

“This had led to misuse of this facility and revenue leakages. Moreover, the sector had absorbed tax paid on various inputs including packaging material and utilities. These input taxes became part of cost and were passed on to patients”, the FBR further explained.

In order to address these issues, pharmaceutical products are made zero rated and any tax paid on their inputs are made refundable. This measure will bring transparency to the sector and help FBR in documenting the entire supply chain. It will also help the government in controlling and reducing the price of pharmaceutical goods, FBR stated.

In order to process the refund claims of this sector, a refund module on the pattern of FASTER is devised. Zero-rating to crude oil, which was withdrawn through Finance Act, 2021 has also been restored.

On the withdrawn tax exemptions, The FBR clarified that these changes have been made for the purpose of tax rationalization and broadening of tax base. Th Government has retained exemptions on essential food items, basic healthcare and education but a number of exemptions have been withdrawn.

The goods on which GST at standard rate has been imposed can be broadly categorized as imported/branded food items or plant and machinery and industrial inputs. Imported live animals/poultry, imported meat/uncooked poultry, imported eggs, imported seeds and various types of agriculture equipment, plant and machinery of green field industries are some of the items which are now brought in to the standard regime of 17 percent sales tax.

Local supply of food items like cereals, meat, poultry, vegetable, fruits, eggs, supplies of locally manufactured laptop and newspapers and sugar cane has been exempted from the levy of sales tax.

On the other hand, some of the exemptions have been withdrawn on raw cotton, whey and sausages (sold other than retail packaging), match-boxes among others.

Furthermore, before Finance (Supplementary) Act, 2022, bread, sheer mal, vermicillies, bun and rusk sold at all bakeries and sweet shops were exempt. However, the said provision has now been amended, whereby tax at standard rate has become chargeable on these items when they are sold in bakeries, restaurants, food chains and sweet shops falling under the category ofTier-1 Retailers.

The FBR said that lower rates than standard rate of GST caused distortion in the tax system. The differential rates were difficult to administer and open to misuse. Therefore, the Eighth Schedule which is related to concessional rates of GST has been streamlined and a number of reduced rates and concessionary regimes have been withdrawn.

The rates of high-end mobile devices (exceeding 200 US$) imported in CBU condition were chargeable to fixed sales tax of 17 percent. Earlier, the Government was charging GST from Rs. 1,740 to Rs. 9,270 per device.

The FBR said that, the condition of CNIC has been withdrawn in case of payment made through debit or credit card or digital mode.

For the purposes of documentation, competitiveness and fair tax regime for all the earlier threshold for cottage industry of rupees ten million has been reduced to eight million annual turnover from all supplies, said in the clarification.

Exemption has been retained for imported fruits and vegetables from Afghanistan in the Supplementary Finance Act 2022.

Reduced rate of sales tax on silver, gold and precious metals jewelry has been withdrawn being luxury items which will not affect the common man while reduced rate of sales tax has been retained in respect of locally manufactured hybrid electric vehicles. Personal computers and laptops have been made chargeable to tax @ 5% if imported in CBU condition.

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