Salient Features of Changes in Sales Tax Federal Budget 2024-25

Major Sales Tax Amendments :

1. Withdrawal of Exemptions

• Edible Vegetables & Fruits from Afghanistan: Exemption on imports has been withdrawn.

• Medical & Diagnostics Kits/Equipment: Exemption on these imports and supplies has been removed.

• Supplies to Charitable Hospitals: Exemption on supplies to hospitals run by charitable institutions have been withdrawn.

• Imports by Non-Profit Institutions: Exemption on imports of goods by non-profit institutions have been withdrawn.

• Stationery Items: Exemption on specified stationery items (e.g., ball pens, erasers, exercise books) has been withdrawn and now taxed at 10%.

2. Introduction of New Exemptions

• Natural Disasters: Import of goods in case of natural disaster or other catastrophic events are exempted.

• Milk: Milk excluding that sold under a brand name is exempted.

• Iron & Steel Scrap: Exemption is introduced for iron and steel scrap.

3. Changes in Sales Tax Rates

• LPG: Sales tax rate on LPG has been increased from 10% to 18%.

• Hybrid Electric Vehicles: Locally manufactured hybrid electric vehicles will now be taxed at 18%.

• Petroleum Products: Zero-rating of petroleum products converted into exemption.

• Medicaments: Sales tax on medicaments classified under Chapter 30 of the Customs Act has been reintroduced at 18% from the existing 1%.

• Mobile Phones: Mobile phones will be taxed at the standard rate of 18%, with phones over $500 taxed at 25% irrespective of existing classification.

• POS Tier 1 Retailers: The reduced rate of 15% sales tax on finished articles of textile and leather supplied by Tier 1 Retailers through POS integrated outlets has been withdrawn. These will now be taxed at the standard rate of 18%.

• Personal Computers and Laptops: Sales tax rate on the import of personal computers and laptops have been increased from 5% to 10%.

4. Withholding Sales Tax

• Specified Goods: The registered person would be liable to withhold 80% of the sales tax applicable on purchase of lead batteries, gypsum, coal, waste paper, plastic waste, crush stone and silica from the person even registered with sales tax.

5. Administrative and Compliance Changes

• Minimum Prices for Third Schedule Goods: FBR can now set the minimum price for items listed in the Third Schedule.

• Sales Tax on Advance Payments: The definition of “time of supply” has been revised. The proposed changes imply that sales tax has to be paid on advance payments from customers, reinstating the condition that was removed vide Finance Act, 2021.

• Tax Fraud: The scope of tax fraud has been broadened, shifting the responsibility to the registered person who committed the fraud to prove that it was not intentional.

• Default Surcharge: The default surcharge is proposed to be calculated at SBP’s KIBOR rate plus 3%, replacing the existing straight rate of 12%.

This new budget has also highlighted the importance of tax filing for individuals, by introducing a new term ‘late filers’ in order to emphasize on the taxpayers to timely fulfill their tax obligations.