FBR’s Biannual Review: Hike in rate helps sales tax collection growth by 18.5 percent

ISLAMABAD: The collection of sales tax has increased by 18.5 percent to Rs1,002 billion in fiscal year 2013/2014 from Rs842 billion in the preceding fiscal year. The significant increase in consumption tax mainly attributed to hike in tax rate from 16 percent to 17 percent.
The Federal Board of Revenue (FBR) in Biannual Review for January to June 2014 said that the sales tax is the top revenue generating source of federal tax receipts. It constitutes 44 percent of the total net revenue collection. The gross and net sales tax collection during the year has been Rs 1,034.5 billion and Rs 1,002.1 billion showing growths of 18.6 percent and 18.9 percent respectively over the collection of PFY. “This significant performance can be attributable to the increased tax rate of sale tax from 16 percent in 2012-13 to 17 percent in 2013-14,” the FBR said.
Of total net collection of sales tax, more than half of total sales tax is contributed by sales tax on domestic while the rest originated from imports during 2013-14.
The overall net collection of Sales Tax Domestic (STD) was Rs.506.8 billion against Rs.412.7 billion in the PFY. The net collection grew by 22.8 percent in FY 2013-14. The sales tax domestic contributed around 51 percent of the total sales tax during 2013-14.
The collection of sales tax has been highly concentrated in few commodities. This is confirmed by the fact that only petroleum products and natural gas contribute around 53 percent of the total sales tax domestic. Major 10 items including POL and natural gas shared 73 percent of the total net sales tax domestic. It is evident from (Table 8) that all the major ten items exhibited positive growths except natural gas.
The petroleum products have been the top revenue spinner of sales tax domestic and contributed around 44 percent in the total sales tax domestic collection during 2013-14. The collection stood at Rs. 231 billion in 2013-14 against Rs. 180.6 billion in 2012-13, recording a growth of 27.9 percent.
The second major revenue source is natural gas which has reflected a decline of 8.9 percent by collecting Rs 31.6 billion during 2013-14. Main reason of this decline is the higher input-output ratio of 77.3 percent during 2013-14 against 72.6 percent during 2012-13. Moreover, higher refunds of more than Rs. 4 billion have been paid as compared to previous year which has also affected the net collection of sale tax domestic.
A healthy growth of 20.5 percent was recorded in STD collection from fertilizers during 2013-14. The production of fertilizer has increased by around 18 percent which has cast favorable impact on the collection of sales tax from fertilizer.
The collection from cement recorded a robust growth of 75.5 percent. Although the production has increased by only 1 percent, but input-output ratio has also declined from 70.3 percent to 61.3 percent during 2013-14.
A massive growth of 98.2 percent in the collection has been attained in electrical energy during 2013-14. The refunds payments during 2013-14 have declined one billion which has improved the net collection. Moreover, the input-out ratio has also declined from 107.7 percent in 2012-13 to 105.2 percent in 2013-14.
The collection from cigarettes has increased by 21.6 percent during 2013-14. The input-output ratio has declined during the period. The collection from the beverages recorded a growth of 26.7 percent in 2013-14 as compared to 2012-13. This growth can be attributable to the growths in the production of soft drinks and juices by 22.1 percent and 11.1 percent respectively.
The collection from sugar has grown by 7.5 percent in 2013-14 against 10 percent growth in the production of sugar during 2013-14. The increased input-out ratio during 2013-14 as compared to previous year has affected collection of sugar.
The collection from tea has recorded significant growth of 57.5 percent during 2013-14 as compared to the previous fiscal year. The growth can be attributable to 13.4 percent increase in the production of tea during the period under review.
Sales tax on imports is a significant component of federal tax receipts. The share of sales tax (imports) in total sales tax net collection has been around 49 percent in FY: 2013-14. The net collection of sales tax imports during FY: 2013-14 stood at Rs. 495.3 billion against Rs. 429.8 billion in 2012-13.
Major 10 commodities of sales tax import have contributed a major chunk of revenue of sales tax (imports) collection (Table 9). Like sales tax domestic, petroleum is a leading source of sales tax collection at import stage. Its share in sales tax imports is 34.2 percent. The share of top three items i.e. POL products, edible oil and plastic is around 47 percent of total collection of sales tax imports. Item-wise details indicate that the collection from POL products was Rs. 169.6 billion against Rs.156.3 billion in the previous year. Thus, the growth in net collection was 8.5 percent. On the other hand, the import value of POL products grew by 2.9 percent.
The collection from edible oil stood at Rs. 33.9 billion in FY: 2013-14 against Rs. 32.3 billion in the PFY. The growth in collection has been 4.9 percent against 6 percent growth in value of import of edible oils. The collection of plastic exhibited 35.1 percent due to 26 percent growth in the import value during 2013-14.
The collection from vehicles has also recorded negative growth of 2.8 percent as compared to 6.7 percent decline in value of imports. Other items like mechanical machinery, iron & steel, electrical machinery, fertilizers etc. recorded positive growths in the collection due to growths in their respective import values.

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