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ISLAMABAD: The federal cabinet is likely to approve the Presidential Ordinance to amend Finance Act 2022 by end-August 2022, proposing zero percent sales tax on the import and local supplies of pharmaceutical raw materials and active ingredients.

Sources told Business Recorder here on Wednesday that the Federal Board of Revenue (FBR) will share the final draft of the Presidential Ordinance with the Ministry of Finance after August 24, 2022. Once the ordinance has been cleared by the Finance Ministry and vetted by the Law Division, it will be presented before the federal cabinet for final approval by end August 2022.

The one percent sales tax imposed on pharmaceutical raw materials and active ingredients would be abolished under the proposed Ordinance. The refund of sales tax paid on the inactive pharmaceutical raw materials would be refunded to the companies.

Under the draft of the Ordinance, the government may take additional taxation measures of Rs18-20 billion. However, the FBR is still in the process of drafting proposals and nothing has been final in this regard.

The government would suffer a revenue loss of over Rs30 billion after the reversal of the fixed tax regime on electricity bills for traders. This is subject to the condition that the old scheme should be restored through the said the Ordinance to compensate the revenue loss.

The FBR has proposed to raise the Federal Excise Duty (FED) on cigarettes through the proposed ordinance. Another proposal under examination is to impose sales tax on fertilisers.

Miftah orders authorities to address pharma industry’s concerns

The Presidential Ordinance may increase the FED on sugary drinks to generate additional revenue in 2022-23. The income tax exemption for Pakistani diplomats serving abroad will be restored or a reduced rate of five percent may be charged.

The Presidential Ordinance may impose a very low rate of sales tax on a few zero-rated sectors and slight raise in the rate of the FED on cigarettes. Few procedural changes are also expected for the pharmaceutical sector.

Sources said that the FBR has estimated revenue of Rs30 billion from the introduction of a new tax slab for small retailers under the Finance Act, 2022. Earlier, the government was collecting around Rs16 billion from this sector against the projected revenue of Rs40 billion under the old scheme. The upcoming Presidential Ordinance will notify new tax rates for trades under the fixed tax scheme (FTS) from October 1, 2022, and old tax rates (prior to budget 2022-23) will continue during July-September 2022.

Under the Presidential Ordinance, the government may give retrospective effect to a few measures for the traders’ community to collect sales tax on old rates. The old tax rates of sales tax through electricity bills for traders will be enforced during July-September 2022 to avoid revenue shortfall from the retail sector.

(i); the fixed tax scheme introduced through Finance Act, 2022 will be rolled back ab initio and the retailers will continue to pay taxes as per the previous (pre-budget) mechanism and rates.

(ii); for the next three months i.e. July to September 2022, the previous tax rates will continue to apply on the retailers.

(iii); the government will review the situation and will notify new tax rates effective from 1st October 2022.

(iv); for the reversal of the fixed tax scheme, necessary legislation will be enacted by the FBR as soon as possible.

Copyright Business Recorder, 2022

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