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FBR Suspends Sales Tax On Sugar Till November 2021

The Federal Board of Revenue (FBR) has suspended the provision of sales tax collection on sugar from the manufacturers on the basis of the retail price up to November 30, 2021.

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The FBR Thursday issued an SRO.989(I)/2021 for not charging sales tax on sugar under the Third Schedule to the Sales Tax Act, 1990 for a specific time period.


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According to the notification, in the exercise of the powers conferred by the proviso to clause (a) of sub-section (2) of section 3 of the Sales Tax Act, 1990, the Federal Government is pleased to direct that the provisions of S. No. 50 of the Third Schedule to the Sales Tax Act, 1990 shall not be applicable for the period commencing on July 1, 2021, and ending on November 30, 2021, it added.

The entry number 50 of the Third Schedule to the Sales Tax Act, 1990, is related to the applicability of sales tax on the basis of printed retail price on sugar, except where it is supplied as an industrial raw material to pharmaceutical, beverage, and confectionery industries. Now, this collection of sales tax, on the basis of the printed retail price, would not be applicable from July 1, 2021, to November 30, 2021.

Recently, the federal cabinet has decided that the implementation of sales tax on sugar will be at ex-mill price till November 30, 2021. During the last budget, the sales tax was imposed on the retail price of sugar and the cabinet decision to implement the sales tax on ex-mill price would cause a positive impact on prices of sugar and its availability.


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When contacted, a tax expert said that the change in the Sales Tax Act 1990, which was made in the budget (2021-22), aims to collect tax on sugar from the manufacturers on the basis of retail prices instead of the ex-factory price by including sugar in the third schedule of the Sales Tax Act. In the case of goods appearing in the Third Schedule, the manufacturer or importer pays the sales tax not on the price at which he is selling the goods, but on the price at which it is sold to the consumers by the retailers.

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Accordingly, the rest of the supply chain, including distributors, wholesalers, and retailers, are not required to pay any tax on their value addition. In addition to paying the tax on the retail price, the manufacturers are also required to print the retail price, along with the amount of sales tax on each article or package in which the goods are sold.

This will necessarily require that the goods leave the factory or import station in the same packing, in which they are sold to the consumers. Keeping in view the said rationale, this mode of taxation has been traditionally applied to items in retail packing such as soaps, toothpaste, shampoos, etc.


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Practically, sugar is not packaged by the manufacturers in retail packing but in 40kg bags, whereas the retailers sell it to the consumers in smaller amounts and in their own packs. Thus, how the requirements of the third schedule could be enforced? Moreover, this mode of taxation may result in further enhancement of the price of sugar. There is another issue in the implementation of the said proposal.

The government is expressing a resolve to bring the retail sector in the tax net but placing ever-increasing reliance on taxation of the consumer products through the third schedule shows that it has no confidence in its efforts.

If the retail sector is coming into the tax net, the items appearing in the third schedule should be progressively reduced rather than adding more and more products to the list. It is worth mentioning that since 2019, more than a dozen items have been added in the Third Schedule, most of which are not suitable for this mode of taxation, tax expert added.

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