Indirect taxes in Budget 19-20: What you need to know

Updated June 11, 2019

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An overview of the new taxes to be faced by consumers and businesses in the upcoming fiscal year. Photo: File
An overview of the new taxes to be faced by consumers and businesses in the upcoming fiscal year. Photo: File

State Minister for Revenue Hammad Azhar announced the federal budget for the upcoming fiscal year on Tuesday amidst loud protests and general uproar in the National Assembly.

With the government having set an ambitious target for revenues for next fiscal — almost 20pc higher than last year — all eyes will now turn to the Federal Board of Revenue as it attempts the challenge set out for it under its new chairman.

Here's an overview of some of the most 'remarkable' measures outlined in the new budget. This discussion excludes income taxes, which have been explored here.

What’s getting more expensive?

The government will be increasing the rates of additional customs duty on imported items that are considered ‘non-essential items’. Going by past announcements, this will likely mean imported cheese, confectioneries and condiments among other things.

Edible oils, ghee and cooking oil will now be charged 17pc FED, which will eat into your kitchen budget.

The government is increasing federal excise duty (FED) on ‘aerated water’ (your soft drinks) from 11.5pc to 14pc.

Your ‘Rooh Afza’ will also be getting more expensive as sugary drinks such as juices, syrups and squashes will be subjected to FED at 5pc of their retail price.

Rooh Afza to get costlier. — Screengrab from Rooh Afza TVC
Rooh Afza to get costlier. — Screengrab from Rooh Afza TVC

There is also an increase in the FED on cigarettes, which will hurt your wallet if you are a smoker.

CNG is also going to get more expensive as CNG dealers will be charged higher taxes. The government is also withdrawing tax exemptions on the import of LNG and substantially increasing the rate of FED applicable from Rs17.18 per 100 cubic meters to Rs10 per million British thermal units (MMBTU).

FED on cement is also being increased from Rs1.5 per kg to Rs2 per kg.

On the upside, sales tax on food supplied by restaurants, bakeries and caterers will get quite a bit cheaper as sales tax is slashed from 17pc to 7.5pc under the new budget. Eating out will get a little easier on the pocket.

The rate of sales tax on concentrated milk powder has also been proposed to be reduced, which will help parents.

Sundry items of interest

The government has proposed the removal of value added taxes on mobile phones and satellite phones, as well as the reduction of regulatory duty on mobile phones.

It has also proposed a reduction of regulatory duty on tyres.

Jewellery is going to get more expensive. Gold and silver are also going to be taxed at the rate of 1pc, while gold used in jewellery will be taxed at 1.5pc, diamonds at 0.5pc and making charges at 3pc.

The bigger the car, the more the duty payable. — File
The bigger the car, the more the duty payable. — File

Cars, too, are going to get more expensive. The government wants to impose FED on cars from 0-1000cc engine capacity at 2.5pc of their value; from 1,001cc to 2,000cc at 5pc of their value; and at 7.5pc of the car’s value if it has engine capacity above 2,001cc.

The strange and interesting

The government has granted an exemption of customs duty on import of wood in a bid to discourage people from cutting down forests.

In a related measure (which will also help the furniture industry) it has also reduced federal excise duty on wooden sheets that are meant to be used as laminates.

Import wood, save our forests. — Ali Hassan/File
Import wood, save our forests. — Ali Hassan/File

In a bid to support tourism related industries, the government has also reduced customs duty on pre-fabricated structures for hotels.

As a result, you can expect to see a lot more pre-fab huts in the northern areas, especially in areas which are considered scenic camping spots.

Incentives for local industries

Apart from granting exemption from customs duty on more than 1,650 raw materials and industrial inputs, the government has granted considerable relief to industries that use or deal in paper products.

It has completely exempted customs duty on raw materials used by the paper industry, and also reduced customs duties on raw material for paper sizing agents, on bobbins and spools made of paperboard, on input goods for paper based liquid food packaging industry, and also on writing and printing papers.

Exemption from customs duty has also been granted for machinery parts and accessories used in the textile sector, while customs duties have been reduced on base oil meant to be used as an input for coning oil, white oil and other textile oils.

In the pharma sector, customs duty has been exempted on 18 medicinal inputs as well as on medicines for certain rare diseases.

Other industries to feel the pinch

On the other hand, the special tax regime extended to the steel sector is being abolished, and it will be slapped with a 17pc FED.

Five zero-rated industries that enjoyed exemptions from sales tax (textile, leather, carpets, sports goods and surgical goods) will also feel the pinch as the government withdraws special treatment.

The government believes these exemptions are being misused and resulting in lost revenues. Therefore, it is reinstating a standard rate of 17pc on all items covered under SRO1125.

“The rate of sales tax on local supplies of finished articles of textile and leather and finished fabric may be raised from current 6pc for integrated businesses and 9pc for others, to 15pc and 17pc, respectively,” states the budget.

“Zero-rating of utilities (gas, electricity and fuels) allowed to these export-oriented sectors through various sales tax general orders be withdrawn.”

In compensation for the new taxes, the government has agreed to refund sales tax to these sectors on an automated basis so that sales tax on inputs is immediately refunded.

Tightening documentation of the economy

The government is making it a requirement for all retail shops having an area of more than 1,000 square feet (111 square yards; 3.67 marla) to integrate their points of sale (POS) with FBR’s computerised systems so that all their sales are reported in real time.

Not only that, the government is also tightening its oversight over the cottage industry to redefine it to include enterprises that a) do not have an industrial gas or electricity connection; are b) located in a residential area; c) do not employ more than 10 workers; and d) do not have an annual turnover of more than Rs2 million.

Criminal proceedings against corrupt FBR officers

“In order to effectively check misuse of authority to gain financial benefit, a new enabling provision is being introduced to prescribe rules for initiating criminal proceedings against officers and officials of the Board [Federal Board of Revenue] who deliberately commit acts or fail to act for personal benefits.

“Similar action would also be taken against persons who offer bribes or other financial benefits to the tax employees,” states the budget document.