Sales tax for tier-1 retailers reduced to 10pc from 12pc

ISLAMABAD: The government has reduced sales tax rates for textile items for integrated tier-1 retailers to 10 percent from 12pc through the Finance Act 2021/22 to encourage documentation.

The threshold of shop area in case of furniture outlet/showrooms increased from 1,000 square feet to 2,000 square feet for inclusion in tier-1 retailer.

The reduced rate of 16 percent was granted on goods supplied from tax-exempt areas of erstwhile FATA/PATA to the taxable areas in the country. The sale of goods through online marketplace was brought into the sales tax net by deeming the online marketplace as a supplier in respect of third- party sales through their platform. However, considering the issues of this nascent sector, this regime was withdrawn, while withholding tax at 2 percent on supplies made by non-active taxpayers was introduced.

Section 56C provides for a prize scheme to promote tax culture. To ensure that the said incentive is not misused, a new subsection is inserted to provide for randomizing “mystery shopping”.

The rate of sales tax on potassium chlorate was increased from Rs80 per kg to Rs90 per kg in addition to 17 percent standard rate.

The zero-rating was withdrawn from petroleum crude oil, parts/components of zero-rated plant and machinery, plant and machinery for the petroleum and gas sector. Sixth schedule was proposed to be streamlined and exemptions other than relating to basic food items, health and education were withdrawn. However, some of the exemptions earlier withdrawn were later retained through proposed amendment in the finance bill

Reclaimed lead and used lead batteries is an unorganized sector. Therefore, 75 percent of sales tax in respect of sales of such goods was proposed to be withheld at source under eleventh schedule. To ensure collection of due taxes, sales tax on sugar was proposed to be levied on retail price by including the said product in third schedule.

The minimum annual threshold of turnover from all supplies for cottage industry is increased from Rs3 million to Rs10 million.

The exemption on import of fat milk was withdrawn through Finance Act. However, considering the importance of milk and dairy sector, zero rating was proposed on milk and fat milk.

Zero rating on ships was proposed to be withdrawn. However, considering the blue economy policy, zero rating on ships was proposed to be continued by making amendments.

Exemptions on import of eggs, cereals and preparations for infants were withdrawn. Moreover, cereals sold in retail packing were excluded from exemption, which increased cereal prices. Accordingly, considering the importance of these items in common citizens’ daily life, exemption on these items is proposed to be allowed by making amendments.

Reduced rate on wheat bran was increased to 17 percent. However due to its use by flour-mills, exemption on local supply of wheat bran was made part of Finance Act. To encourage IT industry, import of plant, machinery and raw material by special technology zone was exempted from sales tax.