The Federal Board of Revenue (FBR) has reduced sales tax on imported finished goods/articles of textile and leather from 17% along with 2% value addition sales tax to 6 percent sales tax along with 2% value addition tax on both at import and its subsequent supplies stage. In this regard, the FBR has issued SRO 1070(I)/2017 here on Monday. Under the SRO, the imported finished goods of carpets, sports and surgical sectors would remain at 17 percent sales tax and 2 percent value addition tax.
According to details, a tax expert said that SRO 1070(I)/2017 was issued in order to rationalize the rates of finished article of imported textile and leather goods. Prior to this amendment there was a disparity of sale tax rates on locally manufactured finished articles with imported finished articles of textile and leather made-ups. This disparity has been seriously confronted by European Union and other counterpart countries for the last couple of years.
Background of the issue revealed that European Commission Directorate General for Trade Services to the government of Pakistan had asked the FBR to do away with discriminatory tax treatment to products imported into Pakistan and the same manufactured domestically, as higher sales tax rate on imported items would negatively affect the EU products destined for Pakistan.
The discrimination of sales tax rate on the imported goods from the EU and those locally manufactured has been seen as contrary to Pakistan”s obligations under Article 111(2) of the General Agreement on Tariffs and Trade (GATT) 1994. The European Commission Directorate General for Trade Services has specifically referred to the SRO 1125(1)/2011, which created discrimination between the sales tax rates applicable on imported goods and those manufactured locally. It has been pointed out that 17 percent sales tax is charged on the supply of finished imported goods ready for use by the general public (where they are not industrial inputs), whereas sales tax @ 5 percent is charged on supply of locally manufactured finished goods to retailers, and on subsequent retail sale of the locally manufactured goods under SRO 1125(1)/2011.
In this regard, the Commission has received complaints from European companies regarding discriminatory taxation on products imported into Pakistan and domestically manufactured products. Sources said the delegation of the European Union to Pakistan presents its compliments to the Ministry of Foreign Affairs and has referred to the letter from the European Commission Directorate General for Trade Services to the Ministry of Commerce, government of Pakistan. The delegation of the European Union had asked the Ministry of Foreign Affairs to keep them informed of the response from the Ministry of Commerce and the Federal Board of Revenue. The delegation of the European Union to the Islamic Republic of Pakistan avails itself of the opportunity to renew to the Ministry of Foreign Affairs the assurances of its highest consideration, it added.
According to the communication of European Commission Directorate General for Trade Services to the FBR, a tax @ 17 percent is charged on the supply of imported finished goods ready for use by the general public (where they are not industrial inputs), whereas a tax at 5 percent is charged on supply of like locally manufactured finished goods to retailers, and on the subsequent retail sale of the locally manufactured goods.