Tax revenues have an overwhelming share in the overall federal receipts. Among these taxes — collected by the Federal Board of Revenue — the sales tax has the lion’s share of 45pc.

The sales tax applies to taxable supplies of both domestic and foreign goods under the Sales Tax Act of 1990.

In Pakistan, sales tax on goods is imposed under federal legislation and is administered by the federal tax authorities, whereas sales tax on services is imposed by provincial tax authorities under the provinces’ sales tax legislation.

Some retailers will have an option to pay sales tax at the rate of 2pc of their total turnover, without the facility of input tax adjustment

Nevertheless, the sales tax regime is modelled on the value added tax (VAT) system in all respects.

Though sales tax is collected in VAT mode, the size of Pakistan’s informal economy is estimated to be larger than the formal economy and the use of fake and flying invoices is incredibly large.

Therefore, the federal tax authorities have adopted a fixed sales tax regime for certain sectors of the eco­nomy to prevent revenue leakage.

Under the fixed sales tax regime, either the rate of sales tax is fixed, the value of supplies is fixed, or both. This differs from the value added tax system practised internationally.

The fixed sales tax regime has been administered through the Sales Tax Special Procedures Rules since 2007. On July 1, however, the FBR issued a statutory regulatory order — SRO 583(I)/2017 — to amend those rules so assss to increase the value of supplies fixed for the imposition of sales tax.

The amended rule No. 5 provides an option to tier-1 retailers to pay sales tax at the rate of two per cent of their total turnover, without the facility of input tax adjustment.

Tier-1 retailers include those who are operating as a unit of a national or international chain of stores, operating in air-conditioned shopping malls, plazas or centres (excluding kiosks), whose electricity bill during the preceding year exceeds Rs600,000, or those wholesaler-cum-retailers who import and supply consumer goods in bulk.

Such an option has to be filed in writing to the chief commissioner of FBR’s Inland Revenue wing by July 15.

Once the option is exercised, it will remain in force for the whole financial year 2017-18.

However, retailers making supplies of finished goods of the five export-oriented sectors — textiles, carpet, leather, sports and surgical products — will pay sales tax at the rates prescribed in SRO 1125(I) issued on Dec 31, 2011.

Under the amended rule No. 58H (1), the rate of sales tax has been increased to Rs10.5 from Rs9 per unit of electricity consumed for producing steel billets, ingots and mild steel products, excluding stainless steel as final discharge of sales tax liability of steel melter and steel re-roller.

Similarly, adjustable sales tax of Rs5,600 per tonne will be charged and collected on the import of re-meltable iron and steel scrap from taxpayers discharging sales tax liability.

Moreover, Rs8,400 instead of Rs5,600 per tonne will be collected from other importers under rule No. 58H (2A).

Under rule No. 58H (2B), sales tax at the rate of Rs8,400 per tonne will be charged on local supplies of re-meltable iron and steel scrap. The previous rate was Rs5,600 per tonne.

According to rule 58Ha, steel melters and steel re-rollers producing electricity using gas generators will pay monthly sales tax on the basis of the gas bill using this revised formula: sales tax payable = (hundred cubic metres x Rs2,494) less sales tax paid on gas bill.

Likewise, steel melters and re-rolling mills operating on self-generated electricity will pay monthly sales tax using this revised formula: sales tax payable = mill size (in inches) x Rs68,187.

Under rule No. 58H(4), fixed amount of sales tax to be paid at import stage by ship-breakers has been increased from Rs80,000 to Rs80,500 per tonne of supplies of re-rollable scrap and other materials obtained from ship-breakers.

The quantity of supplies will be determined at 80pc in case of oil tankers and gas carriers and at 72.5pc for other vessels of the total light displacement (LDT) of the ship imported for breaking. Previously, the quantity has been assessed at 70.5pc.

LDT is the weight of the ship excluding cargo, fuel, water, ballast, stores, passengers, crew, but with water in boilers to steaming level.

According to rule No. 58I, slabs of fixed sales tax amount per tonne to be mentioned by the taxpayers on the invoices have been revised upward.

Similarly, slabs for fixed value to be used for assessing sales tax on steel products has been revised (rule No. 58K).

Last but not least, an additional 2pc sales tax will not apply to supplies of lubricating oils to registered oil marketing companies and supplies made by them to registered manufacturers for in-house consumption (rule No. 58T [1]).

Published in Dawn, The Business and Finance Weekly, July 17th, 2017

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