Budget 2020-21: Here's what you need to know about customs and indirect taxes

Published June 12, 2020
The government has also proposed exemption of all duties and taxes on diagnostic kits for coronavirus and cancer. —Illustration by Rajaa Moini/ File
The government has also proposed exemption of all duties and taxes on diagnostic kits for coronavirus and cancer. —Illustration by Rajaa Moini/ File

Minister for Industries Hammad Azhar presented the budget for fiscal year 2020-21 on the floor of the National Assembly on Friday amid slogans and desk-thumping by opposition members.

Azhar said the government was going ahead with an “expansionary fiscal policy” which was the need of the hour after the economy had contracted due to the coronavirus pandemic in the outgoing fiscal year.

An expansionary fiscal policy means the government is trying to use economic tools to increase spending by individuals and businesses. This can be done in a host of ways such as by cutting taxes so that households and businesses have more disposable income at hand or by reducing interest rates in an attempt to discourage saving or both.

As the minister pointed out, the government has reduced interest rates significantly since the onset of the coronavirus outbreak, from 13.25 per cent to 8pc in a span of three months. With the budget, the government was facing a catch 22 — on the one hand it wants to achieve higher tax revenue but on the other, it wants to boost disposable incomes.

To this end, we list some of the changes in taxes/duties introduced by the government in budget 2020- 21.

Industries

Raw materials for the following industries have been exempted from customs duty, which will make them completely duty free. The industries include:

  • chemicals
  • leathers
  • textile
  • rubble
  • fertilisers
Raw materials for the leather industry, among others, have been exempted from customs duty.
Raw materials for the leather industry, among others, have been exempted from customs duty.

According to the government, this exemption will apply to around 20,000 items used as raw materials in the aforesaid industries, which make up 20pc of all imports.

Furthermore, customs duty rates have been reduced — 20pc, 16pc, 11pc and 3pc to 11pc, 3pc and 0pc — for raw materials and intermediate goods used to manufacture items such as rubber, bleaching agents and other products used domestically.

Retailers

The government has also proposed lowering sales tax — from 14pc to 12pc — for retailers with registered point of sales (POS) systems. So, your neighbourhood general store will most likely benefit from this if they have a computerised system to register transactions. This, the government believes, will give relief to the common man and also help in documentation of economy.

Restaurants

Noticing that the hotel and restaurant industry has been hit badly due to the Covid-19 pandemic, the government has proposed to reduce the minimum tax for the industry from 1.5pc to 0.5pc for six months (April to September 2020).

Mobile phones

Mobile phones manufactured locally will get cheaper after the government has proposed to reduce sales tax on these. However, it was not immediately clear how much reduction in the tax rate was proposed.

Cigarettes, e-cigarettes

FED on imported cigarettes to be increased to 100pc from 65pc.
FED on imported cigarettes to be increased to 100pc from 65pc.

However, not all duties were reduced. For smokers, the budget has turned out to be a burden on their wallets. The government has proposed that the federal excise duty (FED) on imported cigarettes, e-cigarettes, cigars and vaping liquid be increased from 65pc to 100pc.

Similarly, your favourite energy drink will be more expensive as it has been proposed to increase the FED on caffeinated and energy drinks from 13pc to 25pc.

Food supplements for children

Special food supplements for children with genetic birth problems are proposed to be exempted from all duties and import taxes to reduce their cost. — File
Special food supplements for children with genetic birth problems are proposed to be exempted from all duties and import taxes to reduce their cost. — File

Special food supplements for children with genetic birth problems are proposed to be exempted from all duties and import taxes to reduce their cost.

Since supplementary foods for children and expecting mothers are now being manufactured in Pakistan under the World Food Programme, the government has also proposed exemption of customs duties on raw materials used in the manufacture of these supplementary foods.

Covid-19 kits

The government has also proposed exemption of all duties and taxes on diagnostic kits for coronavirus and cancer.

Withholding tax relaxations

Indirect withholding taxes have been removed for the following:

  • Collection of advance tax on education-related expenses remitted abroad
  • Tax on steel melters and composite units
  • Withholding of balance under pension fund
  • Advance tax on functions and gatherings
  • Advance tax on dealers, commission agents and architects
  • Advance tax on tobacco

Opinion

Growth stories
Updated 29 Jul 2021

Growth stories

Reza Baqir says next year’s external financing needs are fully secured, which is reassuring, but there are years after that too.
A future PM?
Updated 29 Jul 2021

A future PM?

Weightlifter Talha Talib should be given a hero’s welcome at the highest level.
Making sense of AJK polls
Updated 28 Jul 2021

Making sense of AJK polls

It was perhaps the dirtiest electioneering in AJK’s history with leaders accusing each other of treachery.

Editorial

29 Jul 2021

Saudi FM’s visit

THE Saudi-Pakistan relationship is decades old and has weathered a number of geopolitical storms. Of late, ties came...
29 Jul 2021

SBP’s high hopes

THE June spike in the current account deficit notwithstanding, the State Bank doesn’t look too worried about the...
Joy and sadness on K2
Updated 29 Jul 2021

Joy and sadness on K2

Pakistan’s mountains have a commercial value that remains untapped.
Renewed threat of militancy
Updated 28 Jul 2021

Renewed threat of militancy

The only way out of a scenario that threatens the hard-won peace against militancy is to engage with the Afghan Taliban.
Updated 28 Jul 2021

‘Hepatitis can’t wait’

WITH a large part of the world’s health resources diverted towards fighting wave after wave of Covid-19, it is ...
28 Jul 2021

Door-to-door jab

THE Punjab government’s move to take its coronavirus vaccination drive to the doorsteps of people in five ...