Sales tax collection on import sees 21 percent growth

KARACHI: The collection of sales tax on import stage increased to Rs470 billion during the first seven months (July-January) 2019/2020 while maintaining growth rate of 21 percent, according to official statistics made available to The News.

According to Large Taxpayers Unit (LTU) 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 percent during first half of the current fiscal year owing to significant decline in import bill for the period.

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

The import bill of the country has declined 17 percent 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 imports had witnessed across the board decline. But they attributed the increase in sales tax collection to abolishing of zero-rating regime for all local and import supplies in the last budget 2019/2020.

They said the zero-rated scheme was replaced with normal sales tax rate of 17 percent. However, exporters had been allowed to claim refunds against payment of 17 percent on import of their raw material and other capital goods.

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

Further, huge misuse of zero-rated on import of fabric and processed fabrics was identified. Sources also attributed the rise in sales tax collection on import stage to 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 percent 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 of the last fiscal year.

Whereas Customs Collectorate Appraisement (East) Karachi collected Rs132 billion as sales tax during first seven months of the current fiscal, showing growth of 12 percent when compared with Rs116 billion in the same period of the last fiscal year.

LTU Karachi has also jurisdiction over collection of federal excise duty (FED) at import stage. The collection of FED posted decline of 4.0 percent to Rs5.3 billion during July-January 2019/2020 as compared with Rs5.8 billion in the corresponding period of the last fiscal year.