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FBR to Earn Billions by Withdrawing Sales Tax Exemptions on Mobile Phones

The Federal Board of Revenue (FBR) is expected to generate Rs. 27 billion from the withdrawal of concessionary sales tax rates on mobile phones under the ongoing exercise of withdrawal of sales tax exemptions during 2021-22.

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At present, the Ninth Schedule of the Sales Tax Act is dealing with the sales tax rates on mobile phones.

Sources told ProPakistani said that the government would impose a 17 percent sales tax on cellular mobile phones in CKD/CBU form under the Ninth Schedule of the Sales Tax Act 1990. All these taxation measures are part of the exercise to generate additional revenue of Rs. 330 billion from the withdrawal of exemptions during the current fiscal year. However, it was informed that the government may not abolish all sales tax exemptions of Rs. 330 billion in one go. Some would be withdrawn through the Presidential Ordinance and the remaining on the next budget due to inflationary implications on the general public.

The FBR data revealed that the sales tax zero-rating under the Fifth Schedule of the Sales Tax Act has a revenue impact of around Rs. 12.887 billion. In case the major sales tax gets zero-rating under the Fifth Schedule of the Sales Tax Act, the FBR would generate additional revenue to the tune of Rs. 12 billion.

Out of the estimated revenue of Rs. 330 billion to be generated from the withdrawal of sales tax exemptions, a major amount would come from the imposition of the standard rate of 17 percent sales tax on imports and local supple stages of the five leading export sectors during 2021-22. The withdrawal of reduced rates of sales tax of 10 percent would generate additional revenue of Rs. 69 billion. This is possible after the imposition of a 17 percent sales tax on items subjected to reduced rates of 10 percent.

Under the Eight Schedule of the Sales Tax Act, the reduced sales tax rate of 5 percent has a revenue impact of Rs. 27 billion. The replacement of 5 percent sales tax with 17 percent would generate additional revenue of Rs. 27 billion.

Under the Eighth Schedule of the Sales Tax Act, the reduced sales tax rate of 2 percent has a revenue impact of Rs. 90 billion. The replacement of 2 percent sales tax with a 17 percent standard rate of sales tax would generate additional revenue of Rs. 90 billion. The single largest contributor to the surge in sales tax exemptions was the exemption from sales tax on imports, showing a massive revenue loss of Rs. 173.808 billion during 2020-21.

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Sales tax exemption on local supplies caused a revenue loss of Rs. 156.134 billion against Rs. 54.871 billion, reflecting a major decrease of Rs. 192.429 billion. However, sales tax exemptions on essential food commodities and health-related items would be retained.

The cost of sales tax exemptions totaled Rs. 578.456 billion in 2020-21 against Rs. 518.814 billion in 2019-20, reflecting an increase of Rs. 59.642 billion; income tax, Rs. 448.046 billion against Rs. 378.03 billion, showing an increase of Rs. 70.016 billion.

Out of total exemptions of Rs. 518.814 billion granted during 2019-20, the zero-rating under 5th Schedule to Sales Tax Act 1990 resulted in a revenue loss of Rs. 13.671 billion; exemption on imports Rs. 255.843 billion; exemption on local supplies Rs. 54.871 billion; reduced rates under 8th Schedule (2 percent) Rs. 74.008 billion; reduced rates under 8th Schedule (5 percent) Rs. 8.677 billion; reduced rates under 8th Schedule (10 percent) Rs. 35.452 billion other reduced rates Rs. 53.138 billion, and sales tax exemption on cellular phones under the 9th Schedule caused a revenue loss of Rs. 27 million during 2020-21.

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