Import sales tax revenue falls 16 percent in March

KARACHI: Import sales tax collection fell more than 16 percent in March over the previous month as coronavirus-led lockdown brought economic activities in the country to almost a grinding halt in the last two weeks, official data showed on Wednesday.

Collection of sales tax on import stage amounted to Rs61 billion in March compared with Rs73 billion in February.

Sources in Large Taxpayers Unit, Karachi attributed the revenue fall to various restrictions on foreign trade. On March 11, the World Health Organization declared coronavirus disease as pandemic. Prior to the announcement several countries already put many restrictions on cross-border movement of people and goods.

Pakistan as precautionary measures also put several restrictions at ports in order to ensure disease-free import and exports. Lockdown announced by the Sindh administration during the last month also restricted the movement of people that hampered clearance at container terminals. In March, sales tax collection on import stage was nine percent higher when compared with Rs56 billion in the same month of the last fiscal year.

The growth in sales tax collection could be attributed to elimination of zero-rated sales tax regime. The Federal Board of Revenue (FBR) does not collect sales tax on imported goods at 17 percent, except for goods imported as raw material used in manufacturing of exported goods. Businesses called for restoration of zero-rated tax regime to improve their liquidity situation, especially in the midst of economic slowdown.

The pace of collection growth fell to 20 percent during the July-March period of fiscal year 2019/20 over the corresponding period of the last fiscal year. The growth was at 22 percent during July-February over the corresponding period of the last fiscal year.

The collection of sales tax at import stage increased to Rs604 billion during the first nine months of the current fiscal year compared to Rs503 billion in the corresponding period of the last fiscal year.

The sources said besides impact of coronavirus the imports already fell across the board owing to several restrictions in the shape of regulatory duty and higher customs duties.

They, however, attributed the increase in sales tax collection to abolishing of zero-rated regime for all local and import supplies in the current fiscal year’s budget. They said the zero-rated tax scheme was replaced with normal sales tax rate of 17 percent. However, exporters were allowed to claim refunds against payment of 17 percent on import of their raw materials and other capital goods.

The FBR justified the abolishing of the zero-rated tax regime. It said it created loophole as the benefit was availed by unintended beneficiaries / non-exporters. Reduced rates of sales tax for finished goods were also harming revenues, the FBR said in a report. Further, the FBR identified a massive misuse of zero-rated facility on import of fabric and processed fabric.