FBR withdraws its sales tax relief consideration

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The Federal Board of Revenue (FBR) has reversed its consideration of providing sales tax relief to the auto industry just before the summary was set to be presented before the federal cabinet for approval.

As a result of yet another U-turn, the move which was thought to be a welcome development for the revival of the auto sector has now been removed from the equation. According to the details, FBR had earlier moved a summary to the federal cabinet for approval on reducing the sales tax liabilities on as many as 32 imported products including auto parts, tyres, tubes and batteries used by the car assemblers. However, the summary has been withdrawn on the day of the scheduled cabinet meeting in which it was supposed to be discussed. It was proposed to remove the 3% value-added tax (VAT) on these products and collect the standard 17% sales tax on their retail prices. The summary was based on amendments to the Third and Twelfth Schedules of the Sales Tax Act 1990. In summary, the decision to abolish the 3% VAT remains intact. It will be implemented on the selected products if the federal cabinet approves it.

The collection of revenue from the sales tax has turned out to be highly effective in the current fiscal year, and therefore, the board has decided to improve the monitoring process of sales tax collection. In the first two months of FY 2019-20, FBR fell short of its target by Rs.64 billion. Out of the total of Rs.579.4 billion collected by the department, sales tax has contributed to a whopping 45.7% equivalent to Rs.265 billion during the first two months of FY 2019-20. Previously, sales tax contribution floated around 38% of which billion indicates a substantial rise. The Chairman of FBR has also directed the concerned departments to take immediate action against the non-filers of sales tax returns for this period. He further told that the products used by the car assemblers would be taxed at their maximum retail prices. According to the FBR, the car assemblers are already enjoying several tax concessions in the market. Moreover, the local auto manufacturers are also protected from the competition it could face from the imported vehicles. There are several conditions and high amount of duties being imposed on the import of cars which has also deprived the consumers of good quality imported products at competitive prices.

The auto products including auto parts, tyres, tubes, and batteries are currently taxed on the maximum retail price under the Third Schedule of the Sales Tax Act. According to the Third Schedule, FBR is authorized to collect 17% standard sales tax on maximum retail prices, excluding the prices of suppliers or manufacturers. A new summary has also been prepared, which only proposes the abolition of only 3% VAT on these products. The Finance Ministry has also sent it to Cabinet Committee for evaluation, and the meeting will be headed by Federal Minister of Law and Justice.

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