Government Withdraws Sales Tax Zero-Rating on Key Items to Enhance Revenue

In a bid to better capture the supply chain and enhance revenue, the government has withdrawn the sales tax zero-rating on several key items, including stationery (excluding exercise books), packaged milk, fat-filled milk, and local supplies to registered exporters through the Finance Act, 2024.

The Federal Board of Revenue (FBR) on Monday outlined significant changes introduced in the Eighth Schedule via the Finance Act, 2024. Key amendments include:

1. Imported LPG and Textile and Leather Articles: Imported LPG and supplies by integrated outlets of textile and leather articles have been moved to the standard tax regime by omitting serial numbers 58 and 66 from Table-1 of the Eighth Schedule.
2. Medicaments: The reduced sales tax rate of 1 percent on medicaments classified under Chapter 30 of the First Schedule to the Customs Act, 1969, has been withdrawn. These items will now be taxed at the standard rate of 18 percent.
3. Specified Goods: Certain goods previously exempt, such as specified stationery items, tractors, oil cake, poultry/cattle food, various seed meals, and vermicelli, have been subjected to a reduced sales tax rate of 10 percent.
4. Imported Laptops and Computers: The sales tax rate on imported laptops and computers has increased from 5 percent to 10 percent.

The Finance Act, 2024, aims to broaden the tax base and boost revenue by either withdrawing exemptions available under Table-1 and Table-2 of the Sixth Schedule or shifting them to the Eighth Schedule, making them liable for reduced rates. Notable changes include:

• Exemptions Removed: Exemptions on edible vegetables and fruit imported from Afghanistan, diagnostic kits or equipment, and the import of cinematic machinery and equipment have been removed.
• Items Shifted to Reduced Rate: Items such as stationery (other than textbooks), oil cake, tractors, vermicelli, sheer mal, buns, rusk, poultry feed, cattle feed, sunflower seed meal, rape seed meal, and canola seed meal have been moved to the Eighth Schedule for sales tax at reduced rates.

New Exemptions Introduced:

• Supply of electricity to Azad Jammu and Kashmir (AJK).
• Import of gold under the entrustment scheme (SRO 760(1)/2013).
• Import of cystagon, cysta drops, and trientine capsules for personal use.
• Bovine semen (PCT heading 0511.1000).
• Import of all goods received as gifts or relief consignments in the event of a natural disaster or other catastrophe.
• POL products.
• Milk excluding those sold under a brand name or supplied by corporate dairy farms.
• Iron and steel scrap, excluding those supplied by manufacturer-cum-exporter of recycled copper, authorized under the Export Facilitation Scheme, 2021.

These changes are part of the government’s ongoing efforts to streamline tax processes and improve revenue collection while maintaining support for essential goods and services.