Cabinet Approves Ordinance for Withdrawal of Fixed Tax on Retailers

The federal cabinet Saturday approved the Ordinance to increase Federal Excise Duty (FED) on cigarettes to the tune of Rs. 36 billion and other taxation measures for withdrawal of fixed tax on retailers imposed through the electricity bills under Finance Act 2022.

The Ordinance will amend provisions of the Finance Act 2022 to bring necessary changes in the income tax, sales tax, and FED laws. The Ordinance has amended Income Tax Ordinance 2001, Sales Tax Act 1990, and Federal Excise Act 2005.

The Ordinance has been vetted by the Law and Justice Division and Federal Cabinet has approved the Ordinance through circulation. The President will sign the Ordinance any time on Sunday.

Under the Ordinance, the capital value tax (CVT) on commercial vehicles has been withdrawn.

The Federal Board of Revenue (FBR) will charge variable taxes to traders, starting with 5 percent sales tax and 7.5 percent income tax will remain in place for three months for all traders. From October 1, 2022, these taxes would be on consumption of 50 units, after which these taxes would gradually increase for higher consumption units. Instead of a fixed tax on retailers that will reduce the revenue of Rs. 42 billion, the government will now revert to the old system of ad valorem tax. This will result in a reduction in FBR revenue of Rs. 15 billion. The amount will be recouped by imposing taxes on tobacco and cigarettes worth Rs. 36 billion.

The FBR has proposed a zero percent sales tax on the import and local supplies of pharmaceutical raw materials and active ingredients. The one percent sales tax imposed on pharmaceutical raw materials and active ingredients would be abolished under the proposed Ordinance. The sales tax paid on the inactive pharmaceutical raw materials would be refunded to the companies.

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