Small retailers: fixed tax regime rationalized

ISLAMABAD: The Federal Board of Revenue (FBR) has rationalized the fixed tax regime for small retailers through the Finance Act, 2022.

The FBR issued Circular No 09 of 2022-23 on Thursday to explain important amendments in the Sales Tax Act, 1990, Federal Excise Act, 2005, and ICT (Tax on Services) Ordinance, 2001 through Finance Act, 2022.

The fixed tax regime for retailers has been rationalized and now instead of percentage of the amount of monthly electricity bill, tax shall be charged on their monthly electricity bills as; Rs3,000 for monthly bill up to Rs30,000, Rs5,000 if the monthly bill exceeds Rs30,000 but does not exceed Rs50,000 and Rs10,000 for monthly bill over Rs50,000. This shall constitute full and final discharge of tax liability of such persons under both Income Tax Ordinance, 2001, and Sales Tax Act (STA).

However, these tax amounts shall be doubled if the name of the retailer does not appear on the Active Taxpayers List (ATL) issued by the Board under section 181A of the Income Tax Ordinance, 2001 on the date of issuance of monthly electricity bill.

In addition, the board has been empowered to notify through an STGO persons or class of persons required to discharge their sales tax liability through payment of a fixed amount along with their monthly electricity bills, the FBR added.

Fixed Tax Scheme: 2.5m retailers to be brought into tax net

The FBR explained that a majority of the export facilitation schemes being operated under Customs Rules are going to be merged in the Export Facilitation Scheme (EFS) 2021 by August 2023.

Therefore, in order to make EFS attractive for the exporters, local supplies of raw material, machinery and components to the registered exporters authorized under this scheme have been made zero rated.

Under the Finance Act 2022, the following goods have been exempted from sales tax: import and supply of photovoltaic cells and modules; goods imported by or donated to hospitals run by the non-profit making institutions and local supplies of goods (other than electricity and natural gas) to hospitals run by the charitable hospitals of fifty beds or more; goods temporarily imported into Pakistan, meant for subsequent exportation; import and local supply of fertilizers, tractors, and seeds for sowing; import and supply of oil cake and other solid residues used in the animal feed industry; imports including machinery, equipment and materials for exclusive use within the limits of Export Processing Zone or for making exports. Previously these were made subject to tax at standard rate through the Finance Supplementary Act, 2022; goods temporarily exported which were produced in Pakistan and are subsequently imported within one year of their exportation; art card used in printing of the Holy Quran; goods imported by or supplied to UN Diplomats and Missions, w.e.f., January 15, 2022; local supplies of raw hides and skins, prepared food stuff by restaurants and caterers, and naan, chappati and all types of breads; plant and machinery imported by the energy projects, including those under CPEC, that have entered into implementation agreement with the Government of Pakistan prior to January 15, 2022.

Locally produced coal was chargeable at Rs425 per metric tonne or 17% ad valorem whichever is higher. This rate has not been revised since 2017. This has now been increased to Rs700 per metric tonne or 17% ad valorem whichever is higher, the FBR added.

To discourage smoking and to tap the true potential of cigarette and tobacco sector as per international best practices, the rate of FED on cigarettes has been increased. The FED rates have been enhanced from Rs5,200 per 1,000 cigarettes to Rs5,900 on Tier-1 and from Rs1,650 to Rs1,850 per thousand cigarettes on Tier-2.

Furthermore, in order to raise the minimum price of cigarettes, the price threshold has also been enhanced from Rs5,960 to Rs6,660 per 1,000 cigarettes.

To raise revenue from the high-income earners through indirect taxation on luxury travel, the FED on international air travel in business, first and club classes has been increased from Rs10,000 to 50,000 per passenger embarking on an international journey. This enhanced levy is to be collected at the time of issuance of air tickets after July 1, 2022, the FBR added.

Copyright Business Recorder, 2022