Government Likely to Withdraw Majority of Sales Tax Exemptions in Upcoming Budget

Sales Tax

The government is expected to impose an 18 percent sales tax on most goods currently exempt from sales tax or charged at a zero percent rate starting July 1, 2024.

A proposal is under consideration to apply an 18 percent sales tax to numerous items that are currently zero-rated under the Sales Tax Act 1990. The Federal Board of Revenue (FBR) is reviewing the list of zero-rated and sales tax-exempt items to assess the feasibility of this change.

Currently, stationery products and dairy items are subject to a zero percent sales tax. Some stationery items are also exempt from sales tax. The proposal aims to withdraw these zero-ratings/exemptions and impose an 18 percent sales tax on these items.

Another proposal suggests imposing a lower sales tax rate on these items, but it is more likely that a standard rate will be applied.

Sources informed ProPakistani that the FBR is also considering withdrawing sales tax exemptions on fertilizers and tractors, although a final decision has yet to be made.

Presently, petroleum crude oil is zero-rated under the sales tax regime. If this zero-rating is withdrawn, petroleum crude oil would be subjected to an 18 percent sales tax.

Pesticides and their active ingredients, registered by the Department of Plant Protection, are currently exempt from sales tax. If this exemption is withdrawn, these items would also be subjected to an 18 percent sales tax unless a lower rate is specifically notified.

Similarly, the import and supply of iodized salt bearing brand names and trademarks, whether or not sold in retail packing, is currently exempt from sales tax.

A sales tax exemption also applies to liquefied natural gas (LNG) imported by fertilizer manufacturers for use as feedstock.

However, the government may retain the zero-rated sales tax on supplies to diplomats, diplomatic missions, privileged persons, and privileged organizations.

These changes reflect the government’s effort to broaden the tax base and increase revenue by eliminating many existing tax exemptions and applying a standard sales tax rate on a wider range of goods.