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ISLAMABAD: Pakistan has a unique case of exemptions in erstwhile Federally Administered Tribal Areas (Fata), where exemptions are granted for mainstreaming of the geographic areas.

This has been stated by the Federal Board of Revenue (FBR) in the “Explanatory notes on Sales Tax Estimates” of the tax expenditure report 2021.

In the federal budget (2021-22), the government has granted exemption of the Federal Excise Duty (FED) to the tribal areas despite strong resistance from the documented sectors of tariff areas of Pakistan.

According to the FBR's report, the FBR has given three types of sales tax concessions including zero-rating, exemptions, and reduced rates.

Zero rating Under Section 4 of the Act, goods exported, or the goods specified in the Fifth Schedule; supply of stores and provisions for consumption aboard a conveyance proceeding to a destination outside Pakistan as specified in Section 24 of the Customs Act, 1969 (IV of 1969); such other goods, as the Federal Government may specify by notification in the official Gazette, whenever circumstances exist to take immediate action for the purposes of national security, natural disaster, national food security in emergency situations and implementation of bilateral and multilateral agreements are charged to tax at the rate of zero percent.

Exemptions under Section 13 of the Sales Tax Act 1990, supply of goods or import of goods specified in the Sixth Schedule are, subject to such conditions as may be specified by the federal government, are exempt from tax under the Act.

The federal government is empowered to issue exemptions whenever circumstances exist to take immediate action for the purposes of national security, natural disaster, national food security in emergency situations and implementation of bilateral and multilateral agreements, by notification in the official Gazette.

Exemptions can be on any supplies made or imports, of any goods or class of goods from the whole or any part of the tax chargeable under the Act, subject to the conditions and limitations specified therein.

Reduced rates under section 3(2)(b), the federal government is empowered to declare that in respect of any taxable goods, the tax shall be charged, collected and paid in such manner and at such higher or lower rate or rates as may be specified, subject to such conditions and restrictions as it may impose, by notification in the official Gazette.

In sales tax act, concessions are granted broadly by three ways: ie, zero rating, exemptions, and reduced rates.

In some cases, product-based concession is granted under sales tax act, for example, in case of food and grocery items, certain products are exempt or have reduced rate of sales tax.

It may get tricky because these exemptions.

Tax Expenditure Estimates 2021 can then have rules within rules.

Prepared foods and ready-to-eat food items may be exempted or have reduced rate, whereas, the same items, if sold under brand name may not have the concession.

Under the Act certain products that are intended to be used for in-house consumption, for use of a specific organization are given tax concession.

Typically, this is where, the end consumers are not liable to be taxed, or intended to be given tax concession.

Diplomats, diplomatic missions, diplomatic organisations, non-profit organizations or government agencies often are not required to pay sales tax. This concession in the form of zero rating or exemption is extended to these national and international agencies.

Certain tax concessions under the act are granted for a specific economic activity. Like export promotions or certain activities in export processing zones.

A unique case in Pakistan is the case of exemptions in erstwhile Federally Administered Tribal Areas (Fata), where exemptions are granted for mainstreaming of the geographic areas, the report added.

Copyright Business Recorder, 2021

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