Government to remove 3% VAT amid an economic slump

[Mark-x]

The country is in economic crisis and the automobile industry is also struggling due to a major slump in production and sales. In a bid to revive several sectors including the automobile industry, the current government has decided to withdraw the 3% value-added sales tax from various imported products. The Ministry of Finance and Revenue is all set to present its summary before the federal cabinet for approval on this with drawl through an amendment in the Sales Tax Act of 1990. Currently, all the imported items are subject to 17% sales tax and 3% value-added tax which sums up to a total of 20%. If the federal cabinet approved the summary of concession, the imported products will be subject to 17% standard sales tax only. The Federal Board of Revenue (FBR) is already struggling to meet its targets and in the first two months of the fiscal year 2019-20, it has dropped short by Rs.64 billion in its tax collection.

The automobile-related products mentioned by the finance ministry in its proposal include imported storage batteries, auto parts, tyres, and tubes. Once approved, these products will be exempted from the additional 3% VAT on their retail price. These products are being taxed on their retail price under the Third Schedule of the Sales Tax Act. This particular act allows the Federal Board of Revenue (FBR) in the collection of standard sales tax equivalent to 17% on retail prices. Note here that the suppliers or manufacturer’s prices are exempted from this taxation. According to the officials of the finance ministry, lower taxation benefits are proposed for the car manufacturers and assemblers in the country. The decision to exclude the products for vehicle assemblers from the retail price taxation framework was finalized at the highest political level. It means that the assemblers have succeeded in getting relief from the government on retail taxation on the back of plunging production and sales volumes.

The exemption of retail taxation will also be implemented on various products such as brake fluids, lubricating oil, transmission fluid, storage batteries, tyres and tubes, etc. which are sold in retail packaging. This excludes the ones sold to the automotive manufacturers and assemblers. It is pertinent to mention here that the auto industry is suffering from a serious economic slowdown process due to the devaluation of Pakistani Rupee against the US dollar.