FISCAL BUDGET 2023-2024: Unveiling The Proposed Sales Tax Amendments

How quickly things can change in a year! The much-awaited annual fiscal budget 2023-2024 was announced on 9th June 2023 by Ishaq Dar.

The Bill is subject to approval by the National Assembly and may undergo changes before it’s enacted into law. 

Taxhome advises its readers to carefully consider the specific wording of the Bill, and later the Finance Act, 2023 [FIA], as they apply to the facts of the case before forming any opinion on a matter. 

Without a shadow of a doubt, this budget is a stark reminder of the dramatic changes we’ve experienced from a geo-political, energy supply and broader economic perspective. 

However, it possesses significance for individuals, business persons and the whole economy of Pakistan. 

This blog provides a quick summary of the significant amendments in Sales Tax Law proposed through the Bill. For more updates on the law, read our next blog. 

Topic Index

• Amendments In Sales Tax 
• Production, Transmission and Distribution of Electricity
• Tier-1 retailer 
• Directorate Generals of Digital Initiatives
• Offences and Penalties
• Amendments in Fifth Schedule
• Amendments in Sixth Schedule
• Amendments in Eight Schedule

Amendments in Sales Tax:

Production, Transmission and Distribution of Electricity:

Section 2(12) and 2(33)

The budget proposes the exclusion of Production, Transmission and Distribution of Electricity from the definition of “good” and “supply”.

This was added last year via Finance Bill 2022 under Sections 2(12) and 2(33) of the Sales Tax Act, 1990 [the Act], which created a dispute between the Federal and Provincial tax Authorities.  

This change may aim to streamline the taxation process for the energy sector.

Tier-1 retailer 

(Section 2(43A)

The bill proposes to remove the following retailers from the definition of Tier-1 retailers:

1. Retailers shop comprising an area of one thousand square feet or more; 
2. Retailers dealing in furniture, comprising an area of two thousand square feet or more and;
3. Retailers engaged in the supply of articles of jewelry of precious metals or its derivatives;

Directorate Generals of Digital Initiatives

Section 30CA

The bill seeks to substitute the Directorate General of Digital having Invoicing and Analysis with the Directorate General of Digital Initiatives with a similar formation.

Offences and Penalties

Section 33 Serial No. 23

The bill proposes to streamline the clause with section 40(C) of the Act by substituting cigarette packs with the goods or class of goods as specified by the Board under sub-section (1) of section 40C and hence, enhancing the scope for penalties. 

The scope of Sr. No 23 of the table in Section 33 of the Act was previously confined to cigarette packs only. 

Amendments in Fifth Schedule

• Reko Diq Project

     Serial No 8A

The bill inserted S.No.8A in the Fifth Schedule of the Act. This Serial No. proposes zero rates on the import or supplies made by/to/for the Reko Diq Project under the FIA for a period of 30 years.

• Stationary Items

      Serial No.12

The bill proposes to enlarge the scope of PCT heading 9017.2000 by substituting the description of clause (xxv) of Serial No.12 meant for the zero-rating of geometry boxes to harmonize it with the above PCT heading.

• Export Facilitation Scheme

     Serial No.21

The proposed amendment seeks to inflate the scope of zero-rated local supplies for registered exporters by covering “commodities” therein.

This insertion would extend the benefit of zero rating to indirect inputs as well.

Amendments in Sixth Schedule

• Withdrawal of Sales Tax Exemption for Bulk Edible Product Sales: 

By virtue of proposed measures, the exemption of sales tax on the bulk sale of branded edible products under Table II of the Schedule, including milk, yogurt, butter, desi ghee cheese, fish products of meat, meat offal, and meat of bovine animal, sheep, goat and uncooked poultry. 

Similar measures are proposed for the import and supply of red chillies, ginger and turmeric

This measure aims to generate additional revenue from the sale of these products.

• New Insertion

The bill has proposed to exempt new insertion i.e., import and supply of goods from Serial no. 176 to Serial no. 82 of Table 1 of the Sixth Schedule as follows;

• Contraceptives and accessories thereof
• Bovine Semen
• Saplings
• Agricultural machinery such as combined harvesters – threshers, dryers, No-till direct seeder and planters, transplanters and other planters
• Specified IT equipment such as laptops, personal computers, mouse, CD ROM drives, hard disk drives, etc., by Software Export Board (PSEB) subject to fulfilment of certain conditions. 

Amendments in Eight Schedule

Increase in Sales Tax Rate for Textile and Leather: 

Serial No.66 [Rate of Tax by Tier-1 Retailers of Textile and Leather articles] of the Eight Schedule of the Act offers reduced rates for retail outlets which are integrated with FBR’s POS real-time system.

Viably, a 3% increase in the sales tax is proposed for Tier-1 Retailers dealing in finished articles of leather and textile products subject to a certain condition. 

The previous sales tax rate of 12% has now reached 15%. This measure aims to enhance revenue collection from these sectors.

The significance of tax filing for individuals as well as companies is also underlined via the new budget, as it introduces evident advantages for taxpayers who proactively fulfill their tax obligations.

In order to facilitate this process, Taxhome has also developed its innovative online platform.

We hope the above blog on Changes in Sales Tax via Budget 2023 to be useful and look forward to bringing your further insights on the Finance Bill when it is released.