Enormous growth in sales tax from imports: FBR to begin in-depth analysis for causes

The Federal Board of Revenue (FBR) has started an in-depth analysis to determine factors behind enormous growth, of 62.8 percent, in net sales tax collection at the import stage during the first quarter of (July-September) 2011-12.
Sources told Business Recorder here on Sunday that the extraordinary growth in net sales tax collection at the import stage during the period under review has prompted the tax authorities to determine the factors responsible for such an exceptional growth. There might be some solid reason, which resulted in such an extraordinary growth in sales tax on imports.
On the other hand, the net sales tax collection on domestic consumption showed a growth of 9.4 percent as compared to 62.8 percent increase in collection at import stage.
In September 2011, sales tax on imports showed a growth of 60 percent. However, growth in the same month sales tax on domestic consumption stood at 18.5 percent.
One key factor behind growth in sales tax collection on imports during July 2011 was speedy clearance of imported consignments at lower rate of 16 percent sales tax from July 1, 2011. The FBR had reduced sales tax from 17 percent to 16 percent and had abolished 2.5 percent special excise duty (SED) and regulatory duty on the import of many items. After announcement of reduced rates in budget for 2011-12, importers withheld their goods clearance to ensure that consignments be released at lower rate of 16 percent sales tax and without payment of 2.5 percent SED and regulatory duties. In July 2011, the clearances of imported consignments increased at lower rate of sales tax which also increased sales tax collection at the import stage during this period.
Sources said that the Board had reduced sales tax from 17 percent to 16 percent and abolished 2.5 percent special excise duty (SED) at import stage, from June 20, 2011 instead of July 1, 2011. At that time, in case of imports, the rate of sales tax was reduced from 17 to 16 percent and special excise duty was also abolished from June 20, 2011. To incentivise trade and industry and also to reduce the burden of indirect taxation, the federal government, in the budget for financial year 2011-12 announced complete abolition of Special Federal Excise Duty and reduction of sales tax rate from 17 percent to 16 percent effective from July 1, 2011. However, with the view to further facilitate the trade and industry in difficult times, it had been decided to give effect to these two measures on imports from June 20, 2011. Consequently, there was no special excise duty on imports and the rate of sales tax on imported goods was 16 percent with effect from June 20, 2011.
Despite clearances made during June 20-30, 2011, sources said, a number of imported consignments were also cleared from July 1, 2011 at lower rate of sales tax without payment of the SED and regulatory duties. This appeared to be one of the major factors behind growth in sales tax collection during July 2011.
Sources said that there was no major growth in sales tax collection on POL products at import stage during this period. In this regard, the FBR would further analyse the data of major revenue spinners of sales tax.
However, the withdrawal of sales tax exemption on plant and machinery had also contributed to increase in sales tax collection for a limited period in the past. The FBR would also analyse the reason behind growth of 18.5 percent on domestic consumption and local supplies during Sep 2011. Sources added that the sales tax on import is an important component of total sales tax collection. Currently, sales tax on imports contributes more than 50 percent of total sales tax collection. In the past, the top ten revenue spinners included POL products; edible oil and waxes; plastic resins; iron and steel; heavy machinery; electrical machinery; paper and paperboard; organic chemical; oilseeds and tea/coffee. The FBR's analysis would also focus on each major commodity which contributed to sales tax collection on imports as well as domestic consumption.
Sales tax collection totalled Rs 180.415 billion in July-September of this fiscal year against Rs 133.702 billion in same period of last fiscal year, projecting an increase of 34.9 percent. Sales tax at import stage amounted to Rs 104.124 billion in first quarter of this fiscal year against Rs 63.957 billion in same period of last fiscal year, indicating an increase of 62.8 percent. Sales tax collection on domestic consumption and local supplies recorded a growth of 9.4 percent and amounted to Rs 76.291 billion in first quarter against Rs 69.745 billion in the same period of last fiscal year. In September 2011, FBR collected domestic taxes worth Rs 128.709 billion against Rs 102.240 billion in the same period of last fiscal year, direct taxes Rs 62.365 billion against Rs 51.610 billion, sales tax Rs 57.387 billion against Rs 41.334 billion, federal excise duty Rs 8.957 billion against Rs 9.206 billion and customs duty collection was Rs 16.364 billion against Rs 14.168 billion in the same period of last fiscal year.