Senators across political divide say end of sales tax exemptions to hike inflation

ISLAMABAD: The Senate Standing Committee on Finance on Saturday rejected a proposal to impose 18 percent sales tax on baby food and fortified child nutrition milk powders citing concerns over the economic impact on families and child health.

The Senate Standing Committee on Finance and Revenue convened its 9th consecutive session to finalise recommendations on the Finance Bill 2024-25. During the meeting, the committee extensively deliberated on the Sales Tax Provisions of the Money Bill 2024.

As all senators unanimously termed it as IMF dictated budget, the FBR informed the Senate panel that the IMF pressed hard to abolish sales tax exemptions of Rs749 billion but they convinced and proposed withdrawal of Rs337 billion.

Irrespective of any political divide among the treasury and opposition benches, the members belonging to Upper House of Parliament unanimously stated that the exemptions of sales tax were omitted without having any rationale, so it would cause a hike in inflationary pressures.

“The ground reality is obvious that it’s IMF budget,” Senator Farooq Naek categorically stated during the proceedings of Senate Standing Committee on Finance, which concluded its recommendations on Saturday. Senators asked the FBR to impose GST even on ‘graveyard’ but probably the IMF does know about it.

Chairman of Senate Panel on Finance Saleem Mandviwalla told journalists after the meeting that the government has imposed Sales Tax on almost all items except a few, which might hike the prices by 10 percent.

Senator Faisal Vawda proposed that there was a value tax on properties/assets abroad which turned into litigation. After one procured assets abroad, the government was asking for payment of tax on per annum basis. Now the value of property had come down and if declared less, the FBR sent out notices and the matter ultimately landed in courts. Currently, there was litigation pending on tax demand of Rs3 billion. He proposed that the FBR should come up at the tax rate of 0.5 percent on rental income on assets owned abroad. It will help those who owned properties abroad to declare and pay their taxes. The committee endorsed his proposal as its recommendation for the budget 2024-25.

Senator Anusha Rahman belonging to ruling PMLN came down hard on the budget makers and took the stance that why only Punjab’s consumers were being penalised through heavy taxation. She severely criticised the hike in tax rates on poultry feed, mobile phones and laptops and argued that the price of chicken would witness a surge.

The FBR’s Member Inland Revenue (IR) Operation Mir Badshah Wazir and Member Policy Ms Amna Faiz Bhatty informed the senators clearly that it was a pre-requisite for entering into fresh IMF programme to abolish all kinds of tax exemptions and slap standard rate of 18 percent. On sensitive items, the IMF asked to slap reduced rate of GST at 10 percent. Except a few sectors such as unpackaged basic food items, health and education sectors would continue enjoying exemptions but all other sectors would be brought into the tax net. The IMF kickstarted its demands to withdraw GST exemptions of Rs749 billion in one go but they could hardly convince the IMF for slapping GST to fetch an additional Rs337 billion through abolishing exemptions. The removal of 5th Schedule Exemptions would bring Rs107 billion into the kitty. The GST on stationary items will fetch Rs6.5 billion.

The committee was informed that the refund claims of Rs60-70 billion remained outstanding by Oil Marketing Companies mainly because of logistics and their payment to provinces. Now the FBR has asked the Ministry of Petroleum to share some portion of Petroleum Levy (PL) amount collected so that the refunds claim backlog of OMCs could be cleared.

The committee rejected several FBR proposals in the Finance Bill for slapping GST on edible vegetables imported from Afghanistan, including roots and tubers except potato and onions, fruits imported from Afghanistan except apples, all stationery items, diagnostic kits including surgery related equipment such as cardiology/cardiac surgery, neurovascular, electrophysiology, endo-surgery, oncology, urology, gynecology, disposable and other equipment, oil cake and other residues, tractors, goods donated to hospitals run by non-profit making institution, vermicelli, sheer mal, bun and rusk, poultry feed, cattle feed, sunflower seed meal, rape seed meal and canola seed meal, branded milk and products, steel and scrap, personal computers and laptops, substance and medicines registered under Drug Regulatory Act 1976, 6 percent GST on certain supplies to ex-Fata/Pata, imposing GST on phones to fetch Rs33 billion additional and persons supplying gypsum.

The committee revised the amendment related to the liability for tax payment or erroneous refunds, incorporating a default surcharge at the rate of KIBOR plus three percent per annum, whichever is higher. Additionally, the committee proposed that transactions exceeding fifty thousand rupees, excluding utility bill payments, must be made via a crossed cheque, bank draft, pay order, or other crossed banking instrument, transferring the sales tax invoice amount from the buyer’s business bank account to the supplier.

Anusha Rahman highlighted concerns over the taxation of medical equipment, emphasizing the impact on healthcare costs, including endoscopy, oncology, urology, gynecology and disposable items. The committee also questioned the basis for granting tax exemptions to certain charitable hospitals, with the FBR clarifying that the Pakistan Centre for Philanthropy (PCP) holds the authority to grant such exemptions. The committee further recommended subjecting donated goods to hospitals operated by non-profit institutions to similar customs duty conditions as those applying to goods with zero-rated customs duty.

Senator Anusha Rahman advocated against proposed tax structures for the telecom sector, particularly concerning cellular and satellite phones, suggesting differentiated tax rates based on import or supply values.

Additionally, recommendations were made to identify organisations exploiting tax exemptions under the guise of charitable status, provide additional allowances equal to 100 percent of basic pay for disabled individuals (comprising less than 2 percent of the workforce), and distinguish remote workers from freelancers for tax purposes.

The committee also proposed exempting corporate debit card transactions from an additional 5 percent tax to prevent double taxation and encourage foreign exchange earnings through ESFCAs.

Senator Sherry Rehman’s recommendations focused on clarifying a proposed increase in export taxes and introducing initiatives to alleviate poverty and unemployment, particularly targeting the 4 percent of Pakistanis living below the poverty line and the 6.3 percent unemployment rate affecting over 4.5 million people. She emphasized the need for targeted programmes and essential services.