The government on Thursday presented the Finance (Supplementary) Bill 2021 in the National Assembly with a plethora of exemption withdrawals to raise revenue collection by Rs. 343 billion.
Since the majority of the new taxes are adjusted against sales tax and/or income tax payable, the bill primarily targets the undocumented sector by imposing taxes mostly at the import stage.
In addition to the Rs. 343 billion worth of sales tax exemptions to be withdrawn, the government has also proposed to increase federal excise duty (FED) on purchase of locally manufactured and imported cars of 1000cc and above categories, this will raise an additional amount of Rs. 25 billion.
The total withdrawn tax exemptions can be broken into three main segments. These are pharmaceutical with Rs.160 billion, plant and machinery Rs. 112 billion, and goods Rs. 71 billion. The Rs. 272 billion tax exemptions related to machinery and pharmaceuticals are refundable and adjustable.
The government has proposed sales taxes on over 150 important consumer and industrial goods including imported plant and machinery, luxury items, dairy products, meat/poultry, pharmaceutical raw materials, beauty products/food supplements, computers, baggage of overseas Pakistanis, cotton/sunflower/canola seeds, mobile phones, branded iodized salt, energy saver lamps/tube lights, and imported re-meltable scrap.
Imported goods by various UN agencies, diplomats, and diplomatic missions will be taxed at a rate of 17 percent. At the current import volume, the annual revenue potential is Rs. 300 million. Gifts or donations from a foreign government or organization will be taxed at a rate of 17 percent.
Parcels sent through the mail will be taxed at a rate of 17 percent. Items sold in sachets will be subject to a GST rate of 17 percent, up from 8 percent previously. Agriculture-related seeds, plants, tools, and chemicals will be subject to a 17 percent GST.
An increase in income tax on cellular services (mobile phone calls) from 10 percent to 15 percent, a 17 percent standard sales tax on imported mobile phones, and a 5 percent withholding tax on telecom services have also been proposed. Furthermore, mobile phones worth more than $200 that are imported in CBU condition are subject to a 17 percent sales tax.
The GST on multimedia projects will rise from 10 to 17 percent, and lithium iron batteries will rise from 12 to 17 percent. The GST on silver and gold will rise from 1 to 17 percent, while the GST on articles of jewelry would rise to 17 percent.
A 17 percent GST is proposed on items sold in bakeries, restaurants, and sweet shops, food served through flight kitchens, sausages and products of poultry meat, locally produced crude vegetable oil, cereals, and red chilies (openly sold).
Imported vegetables will be subject to a 10 percent tax, while flour mills will be subject to a 10 percent sales tax.
Fitness centers, laundries, beauty salons, and travel agencies located in the Islamabad Capital Territory will all be subject to a 5 percent tax.
Imported laptops, desktop computers, and notebooks will also be subject to a 5 percent sales tax.
A 17 percent GST is proposed to be imposed on processed milk and dairy items in branded packaging; another 17 percent GST on animals and livestock, poultry machinery, and a 17 percent tax on imported infant formula milk which is currently subject to zero GST.
According to the details, a 17 percent sales tax will be imposed on supplies of household sewing machines; import and supply of iodized salt bearing brand names and trademarks, whether or not sold in retail packaging; raw cotton; matchboxes; whey, excluding that sold in retail packaging under a brand name.
The import of pharmaceutical raw materials is chargeable to a 17 percent sales tax, but local supplies of the final product, namely medicine, are tax-free. Under the Fifth Schedule of the Sales Tax Act, zero-rating is planned for the pharmaceutical industry.
According to the details, sales tax at 17 percent is purposed to be levied on supplies of goods to numbers of items/categories including hospitals run by the federal and provincial government or charitable operating hospitals of 50 beds or more.
Zero-rating of sales tax is also proposed to be extended on items under Drugs registered under the Drugs Act, 1976.
The machinery, equipment, and spares for balancing, modernization, and replacement (BMR) or expansion projects for power generation under an agreement with the government of Pakistan will be taxed for Rs. 14 billion. Machinery, equipment, and spares for BMR or expansion projects for power generation will also be taxed for Rs. 42 billion.
The machinery, equipment, and spares for BMR or expansion projects for power generation through nuclear or renewable energy resources will be taxed for Rs. 6 billion.
Effluent treatment plants, items for use with solar energy will be taxed for Rs. 12 billion.
Sales tax has been proposed to be imposed items with dedicated use of renewable sources of energy like solar and wind such as solar PV panels, LVD induction lamps, SMD and LEDs with or without ballast, fittings, and fixtures; wind turbines, including alternators and mast; Solar Torches; Lanterns and related instruments; PV modules, including inverters, charge controllers, and batteries, are all proposed to be taxed.
The federal government has also proposed withdrawal of the reduced rate of sales tax from the following items: Oilseeds meant for sowing; plant and machinery not manufactured locally and having no compatible local substitutes; flavored milk; yogurt; cheese; butter; cream; desi Ghee; whey; milk and cream, concentrated or containing added sugar or other sweetening matter.
In addition, sales tax is proposed on ingredients of poultry feed, cattle feed; incinerators of disposal of waste management, motorized sweepers; supplies; import of re-meltable scrap; frozen prepared or preserved sausages and similar products of poultry meat or meat offal; meat and similar products of prepared frozen or preserved meat or meat offal of all types including poultry, meat, fish, sodium Iron (Na Fe EDTA), and other premixes of vitamins, minerals, and micro-nutrients (food grade).
The government has also suggested imposing a uniform rate of 17 percent sales tax on the following items at the import stage, however, local supplies of these commodities will be excluded. Live animals and live poultry; bovine, sheep, goat, and uncooked poultry meat, excluding those sold in retail packaging under a brand name.
Moreover, a 17 percent sales tax has been proposed on fish and crustaceans, excluding those sold in retail packaging under a brand name; live plants, including bulbs, roots, and the like; cereals other than rice, wheat, wheat, and meslin flour; edible vegetables, including roots and tubers, except ware potato and onions, whether fresh, frozen or otherwise preserved; edible vegetables, including roots and tubers (non-commercial fertilizer).
Imported live animals and poultry, imported branded meat of cow, buffalo, sheep and goat, imported branded poultry meat, imported branded fish, imported branded eggs and imported branded vegetables except onion and potato will be taxed for Rs. 7.9 billion.
Similarly, imported Atlantic Salmon, Pacific Salmon and hatching eggs imported from Netherlands and Germany will also be taxed.
Taxes on tillage and seedbed preparation equipment, seeding and planting equipment, irrigation, drainage, and agrochemical preparation equipment, harvesting, threshing, and storage equipment, and post-harvest handling equipment will all increase from 5 to 17 percent.
Imports of High-Efficiency Irrigation Equipment (if used for agriculture), Green House Framing and Other Green House Equipment (if used for agriculture), plant, machinery, and equipment imported for setting up industries in the FATA, and appliances and items required for ostomy procedures are all proposed to be subject to a sales tax.
Moreover, the GST on poultry machinery will rise from 7 to 17 percent.
It is proposed that sprinkler, drip, and spray pump equipment be taxed. Single-cylinder farm diesel engines and raw cotton will be taxed. Seeds for sowing sunflower and canola hybrids will be charged.
Combined harvesters up to five years old will be subject to a 17 percent GST, while oil cake and solid residue will be subject to a 17 percent tax, with a revenue target of Rs. 5 billion. The indigenous supply of crude vegetable oil generated in the country will be taxed for Rs. 2 billion.
Greenhouse agricultural equipment would be taxed in the amount of Rs. 5.5 billion. Fans for dairy farms would be taxed for Rs. 500 million, while fish feed, bovine sperm, and animal feed preparations will be taxed for Rs. 4 billion. The new taxes will apply to micro feeder equipment, plant, and machinery imported by greenfield businesses.
A FED hike for automobiles over 1000cc has also been proposed.
The cost of owning an automobile with a combustion engine has also increased. The federal excise duty on automobiles up to 1000cc has been raised to Rs. 100,000, while the duty on vehicles up to 2000cc has been raised to Rs. 200,000. The levy on automobiles with engines larger than 2000cc has been raised to Rs. 400,000.
The FED on imported vehicles with engines ranging from 1000 to 1799cc has been increased from 5 to 10 percent. The FED on imported vehicles with engines ranging from 1800 to 3000cc has been raised from 25 to 30 percent. The excise duty on imported vehicles with more than 3000cc has been raised from 30 to 40 percent.
The FED on domestically manufactured vehicles with 1000 to 2000cc has increased from 2.5 to 5 percent. The FED on domestically manufactured automobiles with more than 2000cc has been hiked from 5 to 10 percent. The FED on locally manufactured double cabin vehicles has been hiked from 7.5 percent to 10 percent.
The FED on imported (4×4) double cabin pickups has been raised from 25 to 30 percent, while the FED on local (4×4) double cabin pickups has been raised from 7.5 to 10 percent.
To recall, as a condition of the IMF’s approval of its Sixth Review, which is due on January 12, 2022, the global lender proposed Rs. 350 billion increase in tax income. In order to meet the aforementioned objective, the government chose to eliminate specific exemptions and standardize GST rather than introducing new tax policies.