Govt likely to raise value-added sales tax on ‘luxury’ imports

KARACHI: The government is mulling to raise value-added sales tax on luxury imports in the coming budget for the fiscal year of 2019/20 as it has stepped up efforts to further reduce import bill and boost revenue generation, sources said on Wednesday.

Sources in the Federal Board of Revenue (FBR) said a proposal from tax managers was under consideration to enhance the value-added sales tax rate to five or seven percent from existing three percent on commercial imports of luxury items, including cosmetics, chocolate, shampoos, and juices.

The sources said the FBR witnessed a decline in sales tax collection during the first nine months of the current fiscal year due to various concessions given in the budget and reduced rate of sales tax on petroleum products.

The sources said the measures taken by the government through increasing regulatory duties in the Finance Supplementary (Amendment) Act 2018 on various luxury and non-essential items helped in reducing import bills.

The enhancement of sales tax on import of luxury goods would further bring down the import bill, according to the sources.

The sources said the proposal of redefining speculative business in the commodity operations is also under consideration by the government to broaden the tax base. The tax managers proposed the government to expand the definition of speculative business beyond the word of commodities. The government was advised to include sale and purchase of movable and immovable properties without transfer of title into the definition.

The sources said such an amendment would help in preventing revenue leakages arising out of Benami property transactions.

The FBR is also considering a proposal to restore minimum tax regime for commercial importers, who were allowed to avail final tax regime through Finance Supplementary (Second Amendment) Act 2019.

The tax managers said the minimum tax regime should be extended to commercial imports under section 148 of Income Tax Ordinance 2001 and supply of goods under section 153(I) and execution of contracts under section 153(1)(c) of the ordinance.

The sources said presently the sectors falling under the final tax regime, especially the commercial importers paying only six percent of tax, are at absolute liberty to declare imputable income of their choice to explain assets or expenses.

The sources said the FBR is also mulling to introduce amendment related to collection of withholding tax on registration of motor vehicles by provincial excise department.

They said the government is also considering to include construction vehicles, including fork lifter, construction and earth moving machinery in the definition of withholding tax on registration of new motor vehicles.