FBR reviews draft bill on withdrawal of ST exemptions

ISLAMABAD: The Federal Board of Revenue (FBR), Tuesday, reviewed in detail, the draft of the Tax Laws (Fourth) Amendment Bill, 2021, on the withdrawal of the sales tax exemptions and zero-rating to the tune of around Rs 350 billion.

Sources told Business Recorder here on Tuesday that a meeting was held at the FBR Headquarters on the said bill, which was attended by the relevant officials of the board.

According to the sources, the tax officials reviewed in detail the provisions of the Tax Laws (Fourth) Amendment Bill, 2021, which has already been vetted by the Law Division.

Sales tax exemption would continue on the import of machinery/equipment etc by the Chinese companies as per Exemption Schedule of the Sales Tax Act, 1990.

The sales tax exemption would be retained on the supplies of electricity, as made from the day of assent to the Constitution (Twenty-fifth Amendment) Act, 2018, till 30th June, 2023, to all residential and commercial consumers in tribal areas, and to such industries in the tribal areas, which were set and started their industrial production before May 31, 2018, but excluding steel and ghee or cooking oil industries.

The rate of sales tax of Rs250 on the Subscriber Identification Module (SIM) cards may not be changed.

The meeting also discussed the issue of sales tax exemption or sales tax zero-rating on the local supplies of medicines after imposing sales tax on import of pharmaceutical raw materials.

Sources said that two proposals are under consideration in this regard. First, the government is planning to impose a 17 percent sales tax on the import of raw materials used in the manufacturing of medicines, but the local supplies of medicines should be zero-rated. This means that the end product is zero-rated, but refund would be available.

The second proposal is to introduce a lower rate of sales tax on the import of pharmaceutical raw materials, but the local supplies or end product would be exempted from sales tax. The lower rate of sales tax like 5-10 percent at the import stage would create distortion in the sales tax regime, which would be avoided.

The sales tax exemption would be retained on the import of materials and equipment [(plant, machinery, equipment, appliances and accessories)] for construction and operation of Gwadar Port and development of Free Zone for Gwadar Port as imported by or supplied to China Overseas Ports Holding Company Limited (COPHCL) and its operating companies namely, (i) China Overseas Ports Holding Company Pakistan (Private) Limited, (ii) Gwadar International Terminal Limited, (iii) Gwadar Marin Services Limited, and (iv) Gwadar Free Zone Company Limited, their contractors and sub-contractors; and Ship Bunker Oils bought and sold to the ships calling on/visiting Gwadar Port, by the aforesaid operating companies having Concession Agreement with the Gwadar Port Authority, for a period of 40 years.

Sales tax exemption would continue on the import of machinery, equipment, materials and goods imported either for exclusive use within the limits of Gwadar Free Zone, or for making exports there from, subject to the conditions that such machinery, equipment, materials and goods, are imported by investors of Gwadar Free Zone, and all the procedures, limitations and restrictions as are applicable on such goods under the Customs Act, 1969 (Act IV of 1969) and rules made there under, shall, mutatis mutandis, apply provided that if any of such goods is taken out of the Zone for purpose other than the export, the tax on the same shall be paid by the importer.

Machinery, equipment and materials imported either for exclusive use within the limits of Export Processing Zone or for making exports there from, and goods imported for warehousing purpose in Export Processing Zone, subject to the conditions that such machinery, equipment, materials and goods are imported by investors of Export Processing Zones, and all the procedures, limitations and restrictions as are applicable on such goods under the Customs Act, 1969,and rules made there under shall mutatis mutandis, apply.

Sales tax has been proposed to be charged on the import and supply of iodised salt bearing brand names and trademarks whether or not sold in retail packing, the sources added.