The Federal Board of Revenue (FBR) has enhanced sales tax on textile sector in consultation with the sector in budget (2015-16) by proposing 3 percent sales tax on all presently identified inputs including yarn and fabrics and 5 percent sales tax on finished goods of leather and textile sectors. Official sources told Business Recorder here on Monday that prior to June 2005, sales tax on the five export-oriented sectors, ie, textile, leather, sports goods, surgical goods and carpets was levied at standard rate of 15 percent, as prevailing at that time.
However, in order to facilitate exporters, all the products of these sectors, and most of their inputs were zero-rated. Unfortunately, this facility was widely misused leading to great loss of revenue. Therefore from 2013, zero-rating has been replaced with various reduced rates of sales tax, which are presently 2 percent on raw materials including yarn, 3 percent on fabric and 5 percent on garments. But even now, this concession is being misused, and most of the imports and supplies under this regime are being made at the lowest rate of 2 percent. To address these issues, after discussions with the textile sector, it is proposed to levy the rate of 3 percent on all presently identified inputs including yarn and fabrics, and 5 percent on finished goods of leather and textile sector. The textile sector is being proposed to be compensated for above measure by decreasing the rate of value addition tax on commercial imports from 2 percent to 1 percent; allowing sales tax refunds on monthly-basis to persons making local supplies at reduced rate under SRO 1125(1)/2011; and to be excluded from the mandatory requirement of payment of 10 percent of output tax under section 8B of the Sales Tax Act.