ISLAMABAD: These are salient features of Sales Tax for the upcoming fiscal year (2021-22)
The proposed budgetary measures pertaining to Sales Tax for FY 2021-22are:
REVENUE MEASURES
1. The sale of goods through online market place is proposed to be brought into the sales tax net by deeming the online market place as supplier in respect of third party sales through their platform.
2. For specified goods, it is proposed that it may be made mandatory for manufacturers of such goods to obtain brand license for each separate brand or SKU.
3. Section 56C provides for prize scheme to promote tax culture. To ensure that the said incentive is not misused, a new sub-section is proposed to be inserted to provide for randomize “mystery shopping”.
4. The rate of sales tax on potassium chlorate is proposed to be increased from Rs. 80 per kg to Rs. 90 per kg in addition to 17% standard rate.
5. Zero-rating is proposed to be withdrawn from Petroleum Crude Oil, parts/components of zero-rated plant and machinery, import of plant and machinery by petroleum and gas sector and supply, repair and maintenance of ships.
6. Sixth Schedule is proposed to be streamlined and exemptions other than relating to basic food items, health and education are proposed to be withdrawn.
7. Eighth Schedule is proposed to be streamlined and reduced rates other than relating to basic food items, health and education are proposed to be brought into standard regime.
8. Reclaimed lead and used lead batteries is an unorganized sector. Therefore, entire amount of sales tax in respect of sales of such goods is proposed to be withheld at source under Eleventh Schedule.
9. To ensure collection of due taxes, sales tax on sugar is proposed to be levied on retail price by including the said product in Third Schedule.
RELIEF MEASURES
10. The minimum annual threshold of turnover from all supplies for cottage industry is proposed to be increased from Rs. 3 million to Rs. 10 million.
11. The threshold of shop area in case of furniture outlet/showrooms is proposed to be increased from 1000 square feet to 2000 square feet for inclusion in tier-1 retailer.
12. Public limited companies are proposed to be excluded from the purview of section 8B.
13. A separate section introduced for allowing extension of time for furnishing of return.
14. Exemption is proposed to be granted to art and printing paper for publication and printing of Holy Quran.
15. Exemption on import of CKD kits for electric vehicles by manufacturers granted by Tax Laws (Amendment) Ordinance, 2021 is proposed to be incorporated in the Sixth Schedule.
16. To facilitate international athletes, exemption to goods temporarily imported by athletes/sportsmen granted by Tax Laws (Amendment) Ordinance, 2021 is proposed to be incorporated in the Sixth Schedule.
17. Tax exemption to auto disable syringes granted vide Tax Laws (Second Amendment) Ordinance, 2021 is proposed to be incorporated in the Sixth Schedule.
18. To encourage IT industry in the country, import of plant, machinery and raw material by Special Technology Zone is proposed to be exempted from sales tax.
19. To facilitate farmers and encourage storage of grain, tax exemption on locally manufactured silos is proposed to be granted till 30.06.2026.
20. Reduced rate of sales tax @ 1% on locally supply of electric vehicles granted vide Tax Laws (Amendment) Ordinance, 2021 is proposed to be incorporated in the Sixth Schedule.
21. In order to address litigation issue, fixed tax on SIM cards is proposed to be deleted with effect from 1st July, 2020.
22. Exemption from value addition tax on import of electric vehicles, CKD kits for small car, 2-3 wheelers, HCVs and all these vehicles in CBU conditions was granted vide Tax Laws (Amendment) Ordinance, 2021 is proposed to be incorporated in the Twelfth Schedule.
23. For facilitation purpose, the concept of constructive payment is proposed to be introduced in section 73.
24. To provide relief to the registered persons, the benefit of compensation for delayed payment of refund is also proposed to be extended to those persons in whose case order under section 66 is passed.
25. For promoting ease of doing business, the concept of Common Identifier Number is proposed to be introduced.
26. For establishment of Border Sustenance Markets, exemption from sales tax is proposed to be granted on food related and other consumable goods.
27. In order to introduce umbrella Export Facilitation Scheme by Customs Wing, exemption on import and zero-rating on local supplies in respect of raw materials, components, parts and plant and machinery to authorized exporters is proposed.
28. Rising prices of locally manufactured small cars is a major concern for low earning families. Accordingly it is proposed that small cars upto engine capacity of 850cc may be exempted from value added tax besides reducing sales tax rate from 17% to 12.5%.
STREAMLINING MEASURES
There are various provisions in the Sales Tax Act 1990 which require some corrections or streamlining, while some changes are being proposed for the purpose of Ease of Doing Business for registered persons. At places some drafting errors also need to be corrected. All such measure are listed below:
S. No. Section Amendments proposed with Rationale
1 2(4AA) A new definition has been inserted to define Commissioner (Appeals).
2. 2(37)(iii) The word “of” is inserted to correct drafting error
3. 2(43A)(g) The definition of tier-1 retailer is streamlined through insertion of a new clause whereby a retailer who has acquired point of sale accepting payment through debit or credit cards from banking companies or any other digital payment service provider authorized by State Bank of Pakistan is also included in the definition of tier-1 retailer
4. 3(1B)(a) The word “on” is substituted to correct drafting error.
5. 11(5) Under section 11(5), a show-cause notice can be issued for recovery of amounts not paid or short-paid within five years of relevant date. Since sales tax is payable on monthly basis, the time bar also applies on monthly basis. However, audits are undertaken on full-6.year basis. Furthermore, audits for income tax and sales tax for the same financial or tax year are undertaken concurrently, the demand in case of sales tax may get time-barred one to two years earlier as compared to demand for income tax. In order to streamline the said provision, the words “relevant date”, is proposed to be changed with the words “end of the financial year in which the relevant date falls”
6. 25AA(2) A new sub-section is added to provide enabling provision in the Act for prescribing rules for determining transfer pricing of taxable supplies between associates to reflect fair market value in arm’s length transactions.
7. 22(1) Section 22(1) has been amended to strengthen and streamline the requirement of record keeping.
8. 47(7) For the word “Collector”, the word “Commissioner” is substituted to correct drafting error.
9. 48(2) Enabling provision has been inserted in respect of request from a foreign jurisdiction under a tax treaty, a multilateral convention, and inter-governmental agreement or similar agreement or mechanism.
10. 50 (2) Procedure for collection, arrangement and publishing of the rules issued under Sales Tax Act, 1990 has been streamlined.
11. 56A Provisions regarding sharing of data with foreign countries on reciprocal basis were introduced through Tax Laws (Amendment) Ordinance, 2021 which is now being incorporated in Sales Tax Act, 1990. Moreover, mechanism for assistance in recovery of taxes on request from foreign countries on reciprocal basis is also proposed by inserting sub-section (3).
12. 76(2) Enabling provision has been inserted for authorizing and prescribing the manner for utilizing the fees and service charges collected under section 76(1)
13. S. No. 18 of Table-II of the Sixth Schedule S. No. 18 of Table-II of Sixth Schedule to the Sales Tax Act, 1990 which grant exemption to marble and granite manufacturers having annual turnover less than Rs. 5 million, is proposed to be omitted. The said exemption is already available under section 2(5AB) of the Sales Tax Act, 1990.
14. S. No. 19 and 20 of Table-II of the Sixth Schedule Exemption on bricks and crush stones has already expired on 30th June, 2018. Accordingly, these serial numbers are proposed to be omitted being redundant.
FEDERAL EXCISE ACT, 2005
The proposed budgetary measures pertaining to Federal Excise Duty (FED) for FY 2021-22are:
REVENUE MEASURES
1. In order to reap reasonable revenue from this sector, federal excise on mobile phone calls exceeding three minutes @Re 1 per call, SMS message @ Re. 0.1 per SMS, and internet data usage @ Rs. 5 per GB is being proposed. This will result into mild taxation of a broad spectrum of population.
2. Electronically heated tobacco products are also proposed to be brought into the tax net by inserting new S. No. 8c of Table-1 of the First Schedule to the Federal Excise Act, 2005.
RELIEF MEASURES
3. In order to facilitate the people of tribal area and encourage investment and economic growth in these areas, exemption is being given from levy of FED to the industrial units located in FATA and PATA.
4. The provision to revise return without prior approval of the Commissioner-IR which is available in Sales Tax Act, 1990 is now proposed to be made available in Federal Excise Act, 2005.
5. Exemption from federal excise duty to 4-wheelers granted vide granted vide Tax Laws (Amendment) Ordinance, 2021 is proposed to be incorporated in the Federal Excise Act.
6. The rate of federal excise duty on telecommunication is proposed to be reduced from 17% to 16%.
7. Payment on account of Merchant Discount Rate (MDR) is proposed to be excluded from the purview of FED.
8. For establishment of Border Sustenance Markets, exemption from federal excise duty is proposed to be granted on food related and other consumable goods.
9. Rising prices of locally manufactured small cars is a major concern for low earning families. Accordingly it is proposed that small cars upto engine capacity of 850cc may be exempted from federal excise duty.
10. In order to introduce new Export Facilitation Scheme, 2021, exemption on import and zero-rating on local supplies in respect of raw materials, components, parts and plant and machinery to registered persons is proposed.
11. Federal excise duty on fruit juices was imposed vide Finance Act, 2019 and resultantly, prices of juices were increased. Moreover due to pandemic, this sector is faced with adverse situation. In order to provide relief to this sector, it is proposed to withdraw federal excise duty on juices.
STREAMLINING MEASURES
There are various provisions in the Federal Excise Act, 2005 which require some corrections or streamlining, while some changes are being proposed for the purpose of Ease of Doing Business for registered persons. At places some drafting errors also need to be corrected. All such measure are listed below:
S. No. Section Amendments proposed with Rationale
1. 14(4) Enabling provision has been inserted in respect of request from a foreign jurisdiction under a tax treaty, a multilateral convention, and inter-governmental agreement or similar agreement or mechanism.
2. 47A Provisions regarding sharing of data with foreign countries on reciprocal basis were introduced through Tax Laws (Amendment) Ordinance, 2021 which is now being incorporated in Federal Excise Act, 2005. Moreover, mechanism for assistance in recovery of taxes on request from foreign countries on reciprocal basis is also proposed by inserting sub-section (3).
3. 49(2) Enabling provision has been inserted for authorizing and prescribing the manner for utilizing the fees and service charges collected under section 49(1)
4. S. No. 56 of Table-1 of the First Schedule to the Federal Excise Act, 2005 To correct drafting error, PCT heading for filter rod has been substituted.
5. Heading of column (2) of Table-2 of the First Schedule to the Federal Excise Act, 2005 To correct drafting error, the word “Services” has been substituted for the word “Goods”
ISLAMABAD CAPITAL TERRITORY (TAX ON SERVICES) ORDINANCE, 2001
RELIEF MEASURES
In order to promote and encourage IT sector, it is proposed that export of services may be zero-rated.