Sales tax collection on imports increases 21 per cent: report

KARACHI: The collection of sales tax on import has recorded a growth of around 21 per cent, increasing to Rs470 billion during the first seven months (July to January) 2019-2020, from Rs389 billion in the corresponding period last year, reported The News.

According to official statistics from the Large Taxpayers Unit (LTU) in Karachi, the collection increased to Rs474 billion during first seven months of the current fiscal year, as compared with Rs389 billion in the corresponding period of the last fiscal year.

It is important to note that the trade deficit narrowed by 30 per cent during the first half of the current fiscal year owing to the significant decline in the import bill for the period, the publication said. 

As per latest figures released by the Pakistan Bureau of Statistics (PBS), the trade deficit shrank by 30.26 per cent to $11.69 billion during July-December in the current fiscal, compared with the deficit of $16.77 billion.

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The import bill of the country has declined by 17 per cent during the first half of this fiscal year to $23.23 billion, as compared with $27.95 billion in the corresponding half of the last fiscal year.

Sources in LTU Karachi said that imports had witnessed a decline across the board. They attributed the increase in sales tax collection to abolishing of the zero-rating regime for all local and import supplies in the last budget 2019-2020.

Sources added the zero-rated scheme was replaced with a normal sales tax rate of 17 per cent earlier. However, exporters had been allowed to claim refunds against payment of 17 per cent on import of their raw material and other capital goods.

The Federal Board of Revenue (FBR), in a report, said that the zero-rating had created a loophole and it was being availed by unintended beneficiaries/non-exporters. Reduced rates of sales tax for finished goods were also harming revenues, it added. 

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Moreover, a huge misuse of zero-ratings on the import of fabric and processed fabrics was also identified. Sources attributed the rise in sales tax collection on the import stage to a sharp devaluation of the local currency during the period under review.

As per PBS, the purchases from foreign markets had cost Rs154.92 to the dollar in December 2019, as compared with Rs138.47 to the dollar in December 2018.

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 per cent growth during the period under review. It collected Rs224 billion as sales tax during July-January 2019-2020 as compared with Rs169.7 billion in the corresponding period last year.

Originally published in The News