ISLAMABAD: The government has raised the sales tax rate to 18 per cent from 1pc on raw materials used in producing pharmaceutical active components and goods, which is expected to spike drug prices.

The Finance Bill 2024 proposed that the standard sales tax rate will be applied to all items classified under Chapter 30 of the First Schedule with exceptions to the Customs Act 1969. The bill suggested several adjustments to the Sales Tax Act and the Customs Act to remove certain exemptions for pharmaceutical products.

The sales tax, at a standard rate of 18pc, is also imposed on medical treatment and diagnostic kits/equipment—cardiology/cardiac surgery, neurovascular, electrophysiology, endosurgery, endoscopy, oncology, urology, gynecology, disposables, and other equipment.

At the same time, an 18pc sales tax is imposed on goods (excluding electricity and natural gas) supplied to charitable hospitals with 50 or more beds, as well as commodities imported by non-profit institutions. Moreover, government has also impose 20pc on import of other syringes, needles, catheters, cannulae, blood collection tube of glass, and blood collection tube of PET.

Decision will also make surgeries, equipment more expensive

The bill explains that the super tax levy will apply for the 2023 tax year and all subsequent tax years. However, it is not clear whether this levy will now also apply to exporters.

Imports from Afghanistan

Through the bill, the Federal Board of Revenue (FBR) has withdrawn the sales tax exemption on the import and supply of edible vegetables imported from Afghanistan, including roots and tubers, except potatoes and onions, whether fresh, frozen or otherwise preserved (e.g., in cold storage) but excluding those bottled or canned.

At the same time, an exemption was also withdrawn on the import of fruits from Afghanistan, excluding apples. The government also withdrew the concessionary rate of 10pc customs duty on fresh and dry fruits except apples from Afghanistan.

The zero rating on import of medical herbs (including heing and zeera) from Afghanistan for subsequent export was also withdrawn.

The government has also imposed 18pc sales tax on local supplies of five commodities -- raw materials, components, parts and plant and machinery to registered exporters authorised under the Export Facilitation Scheme 2021.

In 2021, the scheme was annou­nced for exporters, including manufacturers-cum-exporters and commercial exporters, merging all sch­emes into a single unified procedure.

Penalties for non-filers

The government has proposed a penalty for non-filing of returns in case of discontinuation of business. The minimum penalty will be Rs10,000 for individuals and Rs50,000 for all other cases. The offence is punishable on conviction with a fine or imprisonment for a term not exceeding one year.

The unregistered traders’ shops will be sealed for seven days for the first default of not registering under the Tajir Dost Scheme and 21 days for each default. Such traders will be branded to have committed an off­ence punishable on conviction with a fine or imprisonment for a term not exceeding six months or both.

The finance bill also proposed penalties for failure to comply with the FBR general order for disconnection of utilities connections or mobile SIMs. The need for this amendment was felt when, during a recent SIM discontinuation drive, one of the major telecom operators refused to implement the decision. It is proposed that non-compliant persons will pay a penalty of Rs100,000,000 for the first default and Rs200,000,000 for each subsequent default.

It has been proposed to pay a penalty of Rs500,000 or 10pc of tax chargeable on the taxable income, whichever is higher, for companies, including banking companies and AOPs, that fail to furnish information in the return of income. Such persons shall also be deemed to have committed an offence punishable on conviction with a fine or imprisonment for a term not exceeding one year or both.

In the sales tax, such a person, as well as the person who abets or connives in the commission of trade fraud, is also liable upon conviction by a special judge to imprisonment. At the same time, a heavy penalty will now be imposed on such a person or class of persons who are required by the FBR to integrate their electronic invoicing system but failed to do so.

To protect local producers, the government has also withdrawn exemptions/concessions on the import of cane sugar, wheat, beet sugar, white crystalline beet sugar, and white crystalline cane sugar.

Published in Dawn, June 14th, 2024