Pakistan Considers Major Sales Tax Overhaul for 2024-25 Budget

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.

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