KARACHI: The Federal Board of Revenue (FBR) has issued brief summary of Sales Tax measures for guidance and ease of understanding along with actions required to be taken by the field formations.

To further increase the cost of doing business for non-compliant persons and encourage them to get registered, the rate of further tax has been increased from 1.0 percent to 2.0 percent. FBR has advised all Large taxpayers unit (LTUs) and Regional Tax offices (RTOs) to ensure that further tax of 2.0 percent is charged and paid against taxable supplies made to unregistered persons. Moreover, Regular analysis of monthly sales tax returns by Assessment & Processing cells of the field formations is required. Special focus is required for monitoring increase in flying invoices to avoid further tax.

PD, CREST, has been advised to also analyze monthly returns with a view to detect non-payment of further tax.

Withdrawal of zero-rating from certain dairy products:

In accordance with the government’s policy to phase out concessions, zero-rating has been withdrawn from certain dairy products such as flavored milk, concentrated/sweetened milk & cream, cheese, cream, butter, yogurt, whey and desi ghee. These items shall now be exempt if sold without retail packing or brand name, but charged to sales tax at 10 percent if sold in retail packing under a brand name. It is pertinent to mention that zero-rating has been retained on milk, infant formula milk and fat-filled milk.

FBR has advised Customs Collectorates and LTUs/RTOs to ensure that imports and supplies of the specified dairy products are not made at zero-rate, but charged 10 percent if in retail packing under brand name, and otherwise as exempt. LTU/RTOs should have complete information of all such persons making supply of these items and should monitor their monthly returns ensuring that tax is charged and paid by such persons as per the amended law. This measure will also result in decease in refund claims of such persons which fact also needs regular focus of the field formations.

Rationalization of sales tax on steel sector:

To rationalize the sales tax rates on steel sector in comparison with the standard rate, amendments have been made in Chapter Xl of the Sales Tax Special Procedure Rules, 2007. Commensurate changes have also been made in other associated rates in the Chapter.

While sales tax paid at Rs. 5,600 per metric ton (PMT) on import of re-meltable iron and steel scrap of PCT headings 7204.3000, 7204.4100 and 7204.499O shall remain adjustable as provided in the manner, adjustment against waste and scrap of compressors (PCT Heading 7404.4940) is not admissible. The sales tax on supplies of waste and scrap of compressors which has been charged to sales tax at Rs. 5,600 per MT at import stage shall not be payable. The supplies of re-meltable iron and steel scrap shall be charged to sales tax Rs. 5,600 PMT.

LTUs/RTOs have been advised to ensure that suppliers of electric power charge sales tax at Rs. 9 per unit of electricity from steel melters and re-rollers;  supplies of aforesaid categories of scrap are made at specified rates; no adjustment is given against waste and scrap of compressors; imported quantities of re-meltable scrap correspond to the production determined on the basis of electricity consumption; Project Director (CREST) is advised to ensure that new rate Rs. 9 / unit is duly implemented by electricity companies in their bill. Concerned Customs Collectorates also need to ensure that sales tax is charged at Rs. 8,000 / MT from ship-breakers.

Increase in sales tax rates on mobile phones”

To rationalize the rates of sales tax on imported mobile phones in comparison with the prices of different categories of mobile phones, the rates have been increased from Rs. 150, Rs. 250 and Rs. 500 (depending on the category of phone) to Rs. 300, Rs. 500 and Rs. 1000 respectively.

Customs Collectorates and RTO/LTUs are advised to ensure that sales tax due is properly collected from importers and local manufacturers of mobile phones.

Enhancement of sales tax rates on certain items:

Reduced rate of sales tax of 5.0 percent has been enhanced to 10 percent on several items in accordance with the policy of gradually withdrawing concessions. Similarly, the reduced rate of 5.0 percent has been enhanced to standard 17 percent on certain items.

Customs Collectorates and LTUs/RTOs need to ensure that sales tax is charged at correct rate on import and supply of these goods; LTUs/RTOs should have complete information of relevant units to ensure that due sales tax is paid thereon in monthly return.

Change of exemption regime on poultry feed, cattle feed and ingredients:

Exemption of sales tax, both on imports or supply, of poultry, cattle feed and ingredients has been replaced with exemption on local supply of poultry feed, cattle feed, sunflower seed meal, rape seed meal and canola seed meal under Table 2 of Sixth Schedule and 5.0 percent sales tax on import and supply of other ingredients of poultry and cattle feed under Table 1 of Eighth Schedule.

Customs Collectorates and LTUs/RTOs need to ensure that sales tax is charged at 5.0 percent on the ingredients specified in the Eighth Schedule.

Withdrawal of exemption from certain goods:

By corresponding changes in the Sixth and Eighth Schedules to the Sales Tax Act, 1990, exemption has been withdrawn from incinerators, motorized sweepers, snow ploughs, foreign origin goods exported temporarily, reclaimed lead, waste paper, and plant, machinery and equipment used in the production of bio-diesel, and the same have been subjected to sales tax at a reduced rate of 5 percent.

Customs Collectorates and LTUs/RTOs need to ensure that sales tax is charged at 5 percent on import and supply of these goods. LTUs/RTOs are also advised to identify persons in their jurisdictions supplying reclaimed lead and waste paper who are liable to registration under the law. Their monthly returns should be kept under watch for payment of due tax as well as checking the unlawful input tax adjustment.

Incentives for agricultural sector:

To incentivize the agriculture sector, the rate of sales tax has been reduced to 7.0 percent on import and supply of on-farm agricultural machinery and equipment such as tillage and seed bed preparation equipment; seeding or planting equipment; irrigation, drainage and agro-chemical application equipment; harvesting, threshing and storage equipment; and post harvest handling and processing machinery; and pesticides and their ingredients.

However, the buyer shall not be entitled to claim input tax credit against such goods. In case of pesticides, adjustment only of 7.0 percent input tax shall be available. This has been implemented by amendments in the Eighth Schedule and section 8 of the Sales Tax Act, 1990.

Customs Collectorates and LTUs/RTOs are advised to ensure that sales tax is charged at revised rates on import and supply of the specified goods; and also that no input tax adjustment is taken against such goods except that of the tax paid at 7.0 percent.