KARACHI: Sales tax collection at import stage grew 18.3 percent to Rs664 billion in the first 10 months of the current fiscal year as withdrawal of zero-rated facility neutralised the impact of sinking imports, official statistics showed on Monday.
The statistics showed that sales tax collection from imports rose from Rs562 billion in the corresponding period of the last fiscal year.
Imports fell to $34.8 billion in the July-March period of 2019/20, compared with $40.68 billion in the corresponding period of the last fiscal year, showing a decline of around 14.41 percent. Falling imports helped the country curtail trade deficit, which shrank 26.44 percent to $17.36 billion during the first ten months of the current fiscal year. However, the downward trend could have hurt revenue.
“Yet, abolishing of zero-rated tax regime for all local and import supplies in the FY2020 budget pushed sales tax collection up,” an official said. Export-oriented sectors were previously enjoying no-tax-no-refund facility on imported inputs.
In April, the collection of sales tax on imports registered flat growth to Rs61.6 billion. That was compared with Rs60.8 billion in March. The entire month of April witnessed lockdown for industrial units, shops and schools. Economic activities came to halt due to lockdown imposed to curb local transmission of the influenza. Officials said measures taken by the government to ensure clearance of stuck consignments at ports helped revenue generation during the month. The collection in March witnessed 16 percent decrease when compared with February.
The officials at Large Taxpayers Unit (LTU) Karachi, which collects the sales tax on imported goods from all sea ports, said the imports fell across the board owing to several restrictions in the shape of regulatory duty and higher customs duties.
The pandemic that erupted in China in December, badly hit the world, shearing economic growth.
The officials said the zero-rated scheme was replaced with normal sales tax rate of 17 percent. However, exporters are allowed to claim refunds against payment of 17 percent on import of their raw materials and other capital goods.
The Federal Board of Revenue (FBR) justified the abolishing of the zero-rated facility, saying it created loopholes and the benefit was availed by unintended beneficiaries/non-exporters. Reduced rates of sales tax for finished goods were also harming revenues, FBR said in a report. Huge misuse of zero-rated facility on import of fabric and processed fabrics was identified.
The customs collectorates in Karachi collect sales tax at clearance stage and transfer the amount of sales tax to LTU Karachi. The collection of sales tax by Port Qasim Collectorate posted 32 percent growth during the period under review. The collectorate collected Rs320 billion as sales tax in July-April compared with Rs243 billion in the corresponding period of the last fiscal year.