The government plans to withdraw 3% value added tax (VAT) from 32 imported products besides lowering sales tax liabilities of monopolistic car assemblers.
According to a report by a local English newspaper, the Ministry of Finance and Revenue will table a summary before the federal cabinet today to get its approval and amend the Sales Tax Act of 1990 to give effect to these tax concessions.
The Ministry of Finance has proposed the abolition of 3% value added tax which is currently charged on 32 types of goods that are subject to maximum retail prices. All the imported items are currently subject to 17% sales tax and 3% value added tax, bringing total liability to 20%.
Once the proposal is accepted, these 32 types of imported items will only be subjected to a 17% standard sales tax. However, this will hit the Federal Board of Revenue’s (FBR) revenue collection, which has fallen short of the target by Rs. 64 billion in the first two months of the current fiscal year.
The 3% value-added tax has also been proposed to be withdrawn on the sale of household electrical goods, including;
Household gas appliances, including the cooking range, ovens, geysers and gas heaters, foam or spring mattresses and other foam products for household use, paints, distempers, enamels, pigments, colours, varnishes, gums, resins, dyes, glazes, thinners, blacks, cellulose lacquers and polishes sold in retail packaging are also planned to be exempted from 3% value addition tax.
The proposal also aims to abolish the 3% value addition tax currently charged on the sale of:
Lubricating oils, brake fluids, transmission fluid and other vehicular fluids sold in retail packaging, storage batteries (excluding those sold to automotive manufacturers or assemblers), tyres and tubes (excluding those sold to automotive manufacturers or assemblers), motorcycles, auto rickshaws, biscuits in retail packaging with brand name, tiles and auto parts in retail packaging will also be exempted from the 3% value-added tax.
The report further stated that the ministry has also proposed to exclude imported storage batteries, auto parts, tires and tubes from the retail price taxation. The goods are taxed at the maximum retail price under the Third Schedule of the Sales Tax Act. This act authorizes the FBR to collect 17% standard sales tax on the higher retail prices instead of suppliers or manufacturers’ prices, which are far lower than the retail prices.
These proposals are also against the strategy of FBR Chairman Syed Shabbar Zaidi, who wanted to tax maximum goods on their retail prices aimed at discouraging tax evasion stated the report.
Sources said the decision to withdraw 3% tax and exclude the goods for car assemblers from the scope of retail price taxation was taken at the highest political level. They argued that these sectors sought tax relief due to the economic slump, which had started affecting their sales and production adversely.