FBR for lower rate of two percent ST on zero-rated items
The Federal Board of Revenue has proposed lower rate of 2 percent sales tax on zero-rated items such as dairy products (cream, milk), bicycles, sewing machines, colouring sets, writing inks, exercise books and other items liable to the facility at domestic stage.
Copyright Business Recorder, 2013
Sources told Business Recorder here on Thursday that the FBR has also proposed to curtail 5 percent sales tax on five export-oriented sectors with a reduced sales tax rate of 2 percent with no input tax adjustment favour. Both the revenue generation measures are expected to be notified before the announcement of next fiscal budget. The FBR has forwarded the proposal to Federal Minister for Finance Abdul Hafeez Shaikh for consideration. If the proposals are accepted, the FBR will amend the relevant sales tax zero-rating notifications.
Sources said that the FBR has compiled a list of items subjected to sales tax zero-rating on the domestic stage. The proposal is to withdraw sales tax zero-rating facility on all these items and impose a lower rate of 2 percent sales tax on these zero-rated items. The lower rate of 2 percent sales tax has been proposed to be levied on domestic supplies of zero-rated items with no input tax adjustment facility. Therefore, if the proposal is implemented, the local supplies of dairy products including cream/milk, bicycles, sewing machines, colouring sets, writing inks, exercise books and other items would be subjected to a lower rate of 2 percent sales tax.
Sources said that the FBR is charging 5 percent sales tax on supplies made to the un-registered persons within the five zero-rated sectors, ie, textile, leather, surgical, carpets and sports sector under SRO.1125(I)/2011. The import and local supply of inputs by registered persons of these sectors are zero-rated under SRO 1125/2011. But reduced rate of 5% is applicable on supply to unregistered persons, retailers and persons registered in non zero-rated sectors. The FBR has proposed to apply a lower rate of 2 percent sales tax on supplies made to the un-registered persons under SRO.1125(I)/2011. However, no facility of input tax adjustment would be available on the local supplies to the un-registered persons within the five major export sectors, they added.
When contacted, a tax expert said that the FBR is likely to delete most of the zero-rating items from the SRO549(I)/2008. SRO549(I)/ 2008 - the most important notification which may be revised following Board''s decision to withdraw zero-rating facility. This notification is related to the zero-rating on certain goods subject to certain condition.
The zero-rated items included dairy products, stationary, exercise books, writing, drawing and marking ink, pens and pencil etc sewing machine household type, cotton seed, oil cake and other sold residues. Other items mentioned in the said notification included bicycles, wheel chairs, energy savers and constructions material for Gwadar Export Processing Zone (EPZ).
Expert said that the zero-rating is also available on plant, machinery and equipment (whether or not manufactured locally), including parts thereof and plant, machinery and equipment, whether locally manufactured or imported. Zero-rating is also applicable re-meltable scrap, dedicated CNG buses and all other buses meant for transportation of forty or more passengers whether in CBU or CKD condition, trucks and dumpers with g.v.w. exceeding 5 tonnes, bicycles, trailers and semi-trailers for the transport of goods having specifications duly approved by the Engineering Development Board and road tractors for semi-trailers, prime movers and road tractors for trailers whether in CBU condition or in kit form. Zero-rating is also available on raw materials, components, sub-components and parts if purchased from authorised vendors by a recognised manufacturer of tractors for use in the manufacturing of such tractors under SRO549(I)/2008.
Zero-rating is applicable on raw materials, components, sub-components and parts in case imported or purchased locally for use in the manufacturing of such plant and machinery as is chargeable to sales tax at the rate of zero percent. Under existing zero-rating regime, SRO1125(I)/2011 deals with the zero-rating for five export-oriented sectors including textile, leather, carpets, sports and surgical goods.
SRO863(I)/2007 is related to zero-rating on certain goods subject to certain condition (raw material and local purchase for manufacturing of zero rated goods declared in SRO 549). SRO769(I)/2009 deals with the zero-rating on import and supply of polypropylene for manufacturer of mono filament yarn and net cloth. SR0423(I)/2009 has granted zero rating on all product, services and equipment for execution of work for kararo-wadh section of national highway supplied to M/s Taisei Corp Ltd. Under the Fifth Schedule of the Sales Tax Act, zero-rating has been granted to US Aid programme. As per Fifth Schedule of the Sales Tax Act, zero-rating is available on supply to diplomats, diplomatic mission and privileged person and organisation under various acts and regulations. In accordance with the Fifth Schedule of the Sales Tax Act, zero-rating is applicable on supplies of locally made plant and machinery to EPZ and to petroleum and gas exploration and production sector, tax expert added.