The Federal Board of Revenue (FBR) is mulling a significant change to the country’s sales tax structure for the upcoming fiscal year (2024-25). This proposal could have a substantial impact on businesses and consumers.
Proposed Changes:
- The FBR is considering expanding the application of the standard 18% sales tax rate.
- Currently zero-rated or exempt goods from various sectors like agriculture, dairy, and education supplies could be subject to the standard sales tax.
- The government is reviewing the extensive list of tax-exempt items under the Sales Tax Act, 1990.
- The goal is to broaden the tax base and increase government revenue.
Potential Impact on Various Sectors:
- Stationery and Dairy: These products currently enjoy a zero-percent sales tax or even full exemption. The FBR might impose the standard 18% rate or a potentially reduced rate.
- Agriculture: Fertilizers and tractors might face sales tax if their current exemptions are revoked.
- Energy: The zero-rating for Petroleum Crude Oil could be removed, subjecting it to the 18% sales tax.
- Pesticides: The tax-exempt status of registered pesticides might be re-evaluated.
- Iodized Salt: Currently exempt, branded iodized salt could be taxed.
- LNG for Fertilizer Production: The tax-exempt status of LNG used as feedstock by fertilizer manufacturers might be reviewed.
Exemptions Likely to Remain:
- The government may continue zero-rating sales tax for supplies to diplomats, diplomatic missions, and privileged entities.
- Raw materials and components used for manufacturing within Export Processing Zones (EPZs) and the Gwadar Special Economic Zone are likely to retain their exempt status.
- Imports protected under the Foreign Investment (Promotion and Protection) Act, 2022, might also remain exempt.
Global Context:
- This proposed tax reform comes amidst a complex global economic situation.
- Increased tax revenue could strengthen Pakistan’s national finances.
Future of the Proposal:
- The FBR’s plan requires government approval.
- Final decisions on specific exemptions and potential reduced tax rates are still under consideration.
