Goods imports enjoy most sales tax exemptions

ISLAMABAD: The sales tax exemptions on imports of goods make up Rs255.843 billion or 49.3 per cent of the total exemptions granted in the Fiscal Year 2020, the Federal Board of Reve­nue’s (FBR) internal report showed.

The total sales tax exemptions stand at Rs518.814bn. The estimates come from the FBR’s first-ever comprehensive report titled: Tax Expenditure 2020.

Under the Sales Tax Act, concessions are granted in three ways: zero-rating, exemptions, and reduced rates.

Exemptions on import of goods are subject to specific conditions. However, the report does not mention the actual number of products that were exempted but instead clubs them together in 174 serials.

Of the exemption costs on imports, the bulk of Rs65.279bn was given to pharmaceutical products; followed by Rs54.410bn to cotton and cotton waste; Rs43.265bn to vegetable oil, fats and waxes and Rs40.436bn to milk cream and butter dairy products.

At the import stage, sales tax exemptions amounting to Rs28.065bn were given on poultry and animal feed and meals of sunflower; Rs16.396bn on miscellaneous chemicals; Rs8.255bn on cereals and grains other than rice; Rs7.743bn on oilseeds, miscellaneous grains and medicinal plants; Rs5.638bn on edible vegetables; Rs5.212bn on miscellaneous electrical machinery and equipment; Rs4.946bn on computer and office equipment; Rs4.847bn on electrical energy; Rs3.830bn on meat and edible meat offal; Rs3.663bn on printed books, newspapers, pictures and manuscripts; Rs3.6bn on medical, dental instruments and supplies and Rs3.319bn on live animals.

The exemption cost of products placed in 10 serials range between Rs1bn to Rs3bn. These products are mostly related to industrial inputs. The exemptions cost on products placed in 23 serials is in the range of Rs100 million to Rs1bn. The sales tax exemption costs on import of goods placed in 115 serials is less than Rs100m.

The second highest tax exemption cost is of the reduced rate of 2pc charged on products placed under the 8th Schedule of the Sales Tax Act. The total exemption costs under the schedule stand at Rs74.008bn or 14.26pc. This concession rate is only available to fertilisers — all types.

The sales tax concessions costs stand at Rs54.871bn or 10.57pc on local supply of goods placed in 143 serials under the act. The bulk of the concession amount of Rs24.963bn is available on local supply of cotton and cotton waste; Rs15.991bn on poultry, animal feed and meals of sunflower and Rs1.827bn on vegetable oil, fats and waxes. The tax rate concession cost on products under 116 serials is less than Rs100m.

The cost of reduced rate of 5pc on products placed in the 8th Schedule of the Sales Tax Act is estimated at Rs8.677bn. Of these, the concession in tax rate cost on agriculture tractors was estimated at Rs3.553bn and another Rs2.865bn is on account of natural gas provided at lower rates to agriculture and industrial sectors.

The concession cost of reduced rate of 10pc on products placed in 8th Sche­d­ule is estimated at Rs35.452bn or 6.83pc. Of these, the bulk of Rs24.141bn is due to a lower rate of sales tax on sugar. However, this rate is now revised to a standard rate of 17pc in last year budget.

The lower rate cost on soya bean meal is estimated at Rs6.777bn and Rs2.578bn on ingredients of poultry feed and cattle feed.

The lower rate cost on yoghurt is estimated at Rs506m, flavoured milk Rs452m, liquefied petroleum gas Rs431m, cheese Rs147m and cream Rs136m. The lower rates are also charged on butter, desi ghee and whey. However, the concession costs on these products are nominal.

The reduced rate of 12pc on regassified and liquefied natural gas is estimated at Rs4bn. The exemption cost on cellular phones placed in the 9th Schedule is estimated at Rs23.154bn.

The total cost of zero-rating items placed in 148 serials is estimated at Rs58.258bn, however, the cost comes down to Rs13.671bn after adjustments.

In the case of zero-rated items, the adjustment includes leaving out tax expenditure estimation on some items, which if were not zero-rated, full input tax could have been claimed, such as crude oil, machinery for exploration and production sector and material related to exports.

The tax expenditure of these items is thus deducted from the total estimation of exemption costs.