KARACHI: The FBR, in order to facilitate general consumers, has withdrawn the condition of CNIC in case of payment made through debit/credit card or digital mode.
According to a Circular issued by Federal Board of Revenue (FBR), which provides explanations and context of important changes brought about by Finance (Supplementary) Act, 2022, the Act will help achieve broader economic and financial stability through sustainable economic growth through removal of distortions, broadening of tax base and documentation of economy.
- Streamlining of 5th Schedule
Zero-rating under 5th Schedule to the Sales Tax Act, 1990 has been rationalized and some of the entries have been omitted. For example, zero-rating on local supply of plant and machinery to Export Processing Zones (EPZ), duty free shops, local supplies to exports covered under Export Facilitation Scheme, and supply/repair/maintenance of ships and related equipment and machinery has been withdrawn.
On the other hand, zero-rated regime at import stage is introduced for drugs registered under the Drugs Act, 1976. Pharmaceutical goods and their raw materials were earlier exempt from Sales Tax; as a result, most ofthe supply chain was undocumented.
This had led to misuse ofthis facility and revenue leakages. Moreover, the sector had absorbed tax paid on various inputs including packaging material and utilities. These input taxes became part of cost and were passed on to patients. In order to address these issues, pharmaceutical products are made zero rated and any tax paid on their inputs are made refundable.
This measure will bring transparency to the sector and help FBR in documenting the entire supply chain. It will also help the government in controlling and reducing the price of pharmaceutical goods.
In order to process the refund claims of this sector, a refund module on the pattern of FASTER is devised. Zero-rating to crude oil, which was withdrawn through Finance Act, 2021 has also been restored.
- Streamlining of 6th Schedule
For the purpose of tax rationalization and broadening of tax base, while retaining exemptions on essential food items, basic healthcare and education, a number of exemptions from Table-1 ofthe Sixth Schedule to the Sales Tax Act, 1990 have been withdrawn.
The goods on which GST at standard rate has been imposed can be broadly categorized as imported/branded food items or plant and machinery and industrial inputs. Imported live animals/poultry, imported meat/uncooked poultry, imported eggs, imported seeds and various types of agriculture equipment, plant and machinery of green field industries are some ofthe items which are now brought in to the standard regime.
Through new insertion in Table-2 of the Sixth Schedule, local supply of food items like cereals, meat, poultry, vegetable, fruits, eggs etc. has been exempted from the levy of sales tax. Similarly, supplies of locally manufactured laptop and newspapers are also exempt. Exemption on local supply of sugar cane has also been provided. On the other hand, some of the existing exemptions available in Table-2 have been withdrawn on raw cotton, whey and sausages (sold other than retail packaging), match-boxes among others.
Furthermore, before Finance (Supplementary) Act, 2022, bread, sheer-mal, vermicillies, bun and rusk sold at all bakeries and sweet shops were exempt by virtue of S. No. 7 of the Table ibid. However, the said provision has now been amended, whereby tax at standard rate has become chargeable on these items when they are sold in bakeries, restaurants, food chains and sweet shops falling under the category ofTier-1 Retailers.
Exemption to various plants, machinery and equipment, often involving huge tax expenditure, are available under Table-3 ofthe Sixth Schedule. Some ofthese exemptions have been withdrawn.
- Streamlining of 8th Schedule
Eight Schedule to the Sales Tax Act, 1990, provides rates lower than standard rate of GST and before Finance (Supplementary) Act, 2022 a wide array of rates ranging from 1% to 16.9 % were available under the said Schedule. This caused distortion in the tax system.
The differential rates were difficult to administer and open to misuse. Eighth Schedule has now been streamlined and a number of reduced rates and concessionary regimes have been withdrawn bringing these goods under standard regime.
- Rationalizing 9th Schedule
The rate of Sales Tax on cellular/mobile devices are specified under the provisions ofTable-2 ofNinth Schedule to the Sales Tax Act, 1990. The rates ofhigh-end mobile devices (exceeding 200 US$) imported in CBU condition were chargeable to fixed sales tax ranging from Rs. 1,750 to Rs. 9, 270 per device. There was little justification for reduced rate on import of expensive/high-end branded mobile devices. Therefore, tax @ 17% ad valorem has been introduced for imported mobile devices valuing more than US$ 200.
Other Important Amendments
For the purposes of documentation, competitiveness and fair tax regime for all the earlier threshold for cottage industry of rupees ten million has been reduced to eight million annual turnover from all supplies. Exemption has been retained for imported fruits and vegetables from Afghanistan.
Person whose deductible tax under section 236G/236H of the Income Tax Ordinance 2001 has exceeded a threshold as may be specified by the Board has also been included in a definition of a Tier-1 retailer.
Board has been empowered to include/exclude any item from the Third Schedule. A new Directorate General for Digital Invoicing and Analysis has been provided in the Act.
Through amendment in section 33, sealing of business premises has been provided in case of violation of section 9A of section 3 and section 40C or in case of non-integration with the computerized system of the Board.
Sugar has been excluded from the purview of Third Schedule with effect from 1st December, 2021. In order to facilitate general consumers, the condition of CNIC has been withdrawn in case of payment made through debit/credit card or digital mode.