Misc amendments in Sales Tax Act in 2022
In order to achieve economic stability and revenue maximization as well as for simplification of revenue laws for the taxpayers, certain amendments/insertions/additions have been made in Sales Tax Act, 1990 (hereinafter referred to as “STA”), Federal Excise Act, 2005 (hereinafter referred to as “FEA”) and Islamabad Capital Territory (Tax on Services) Ordinance, 2001 (hereinafter referred as `ICTO”) through the Finance Act, 2022. Following amendments are made in Misc amendments in Sales Tax Act in 2022
Grant of Exemptions from Sales Tax under the Sixth Schedule to STA:
The following goods have been exempted from sales tax:
(i) Import and supply of Photovoltaic cells and modules.
(ii) Goods imported by or donated to hospitals run by the non-profit making institutions and local supplies of goods (other than electricity and natural gas) to hospitals run by the charitable hospitals of fifty beds or more.
(iii) Goods temporarily imported into Pakistan, meant for subsequent exportation.
(iv) Import and local supply of fertilizers, tractors, and seeds for sowing.
(v) Import and supply of oil cake and other solid residues used in the animal feed industry.
(vi) Imports including machinery, equipment and materials for exclusive use within the limits of Export Processing Zone or for making exports. Previously these were made subject to tax at standard rate through the Finance Supplementary Act, 2022.
(vii) Goods temporarily exported which were produced in Pakistan and are subsequently imported within one year of their exportation.
(viii) Art card used in printing of the Holy Quran.
(ix) Goods imported by or supplied to UN Diplomats and Missions w.e.f. 15′ January 2022.
(x) Local supplies of raw hides and skins, prepared food stuff by restaurants and caterers, and naan, chappati and all types of breads.
(xi) Plant and machinery imported by the energy projects, including those under CPEC, that have entered into implementation agreement with the Government of Pakistan prior to 15th January 2022.
Reduction of Tax Rate on Potassium Chlorate
GST at Rs.90 was charged over and above 17% ad valorem on potassium chlorate, the rate has been reduced to Rs. 60 per kg which is to be paid in addition to 17% standard rate.
Reduction of Rate for Electric Vehicles (EV) Buses:
In order to encourage use of non-fossil fuels and renewable energy, rate of tax on EV buses of 25 seats or more which will be mostly used by common man has been reduced to 1%.
Reduction WHST for Online Market Places:
Online market places are expanding with the growth of technology and digital payment modes. In order to facilitate the economic activity through online market places, the rate of withholding tax on sales of third party goods of persons not appearing in ATL made through their platform has been reduced from 2% to 1%.
Condition of NIC Number
The condition of providing of MC number has now been restricted in case of supplies by importer/manufacturers to un-registered distributors only.
Reduced Rate for Locally Manufactured items of Jewelry:
A fixed rate of 3% on locally manufactured articles of jewellery has been introduced subject to the condition that no input tax is adjustable. Furthermore, all jewelers have been included in the definition of Tier-1 retailers except those whose shop area is less than 300 sq. ft.
Withdrawal of Zero-Rating on Drugs
Drugs registered under the Drugs Act, 1976 have been made chargeable to tax at reduced rate of 1% without input adjustment. Similarly, Active Pharmaceutical Ingredients (APIs) and their raw materials are also chargeable at fixed rate of 1% subject to certification by DRAP.
Normal Tax on Import of Expensive EVs:
Before Finance Act, 2022, all types of electric vehicles (EVs) in CBU condition were chargeable at reduced rate of 12.5%. This relief has now been limited to small cars of 50 KWh only and large and expensive vehicles have been made chargeable to tax at normal rate.
Public Limited Companies included in Section 8B:
Public limited companies listed on stock exchange were exempt from the provision of section 8B of STA. This discriminatory exemption has been withdrawn to provide level playing field to the entire corporate sector.
Increase in Rate on Coal:
Locally produced coal was chargeable at Rs. 425 per metric tonne or 17% ad valorem whichever is higher. This rate has not been revised since 2017. This has now been increased to Rs. 700 per metric tonne or 17% ad valorem whichever is higher.
VAT on Scrap:
In order to curb the misuse of certain items of imported scrap, Value Added Tax (VAT) has been imposed at 3% on import of compressor scrap, motor scrap and copper cable cutting scrap by manufacturers as well as commercial importers.
FED on Locally Manufactured Cigarettes:
To discourage smoking and to tap the true potential of cigarette & tobacco sector as per international best practices, the rate of FED on cigarettes has been increased. FED rates have been enhanced from Rs. 5200 per 1000 cigarettes to Rs. 5900 on Tier-1 and from Rs. 1,650 to Rs 1850 per thousand cigarettes on Tier-2. Furthermore, in order to raise the minimum price of cigarettes, the price threshold has also been enhanced from Rs. 5960 to Rs. 6,660 per 1000 cigarettes.
FED on Air Travel:
To raise revenue from the high income earners through indirect taxation on luxury travel, FED on international air travel in business, first and club classes has been increased from Rs. 10,000 to 50,000 per passenger embarking on international journey. This enhanced levy is to be collected at the time of issuance of air tickets after 1st July, 2022.
FED on Telecommunication Services
To bring the rate of FED on telecommunication services in ICT at par with the rates of GST on these services imposed by provincial legislations, it has been enhanced from 16.5% to 19.5%.
For more information on FBR’s new regulations / circulars/ SROs/ amendments in taxation laws in Pakistan please visit https://www.fbr.gov.pk/