Ordinance To Reverse Taxes

ISLAMABAD August 23, 2022: While withdrawing the budgetary fixed tax scheme for traders, the government on Monday increased tax rates to collect an additional Rs18 billion from the tobacco sector to meet lateral demand of the International Monetary Fund (IMF) before it clears Pakistan’s bailout package on August 29.

Through the Tax Laws (second amendment) Ordinance 2022, issued on Monday, the government has also reversed several revenue measures announced in the last budget in a bid to facilitate different sectors and taxpayers and comply with some international obligations.

In the budget 2022, the government introduced the fixed tax scheme for retailers (other than tier-I retailers) on commercial electricity connections to collect Rs42bn alone from these documentation measures. However, the FBR has now withdrawn the fixed tax scheme retrospectively from July 1 this year.

The previous tax regime for retailers, which was prevailing prior to the Finance Act, of 2022, has now been restored.

Through the ordinance, the federal government has been empowered to make any future scheme and determine its modalities, including tax rate or amount and the date when it will be implemented for retailers to collect tax on commercial connections.

Till the new scheme is announced by the federal government, the previous regime prior to the Finance Act will remain in force. The ECC in its next meeting will approve the new scheme with new rates to charge variable taxes to traders to collect Rs27bn from the retail sector as committed by the IMF.

To compensate for the revenue loss from the scheme from traders, the government has increased federal excise duty (FED) on un-manufactured tobacco to Rs390 per kg from Rs10. This will hit the poor farmers of tobacco.

At the same time, the government raised FED on Tier-1 cigarettes to Rs6,500 from Rs5,900 per 1,000 sticks and that on Tier-2 to Rs2050 from Rs1850.

Through the ordinance, the government did take measures to remove difficulties for taxpayers, and corrective measures were also taken to rationalize certain taxes and rates. As per the ordinance, advance tax rates on passenger transport vehicles have been rationalized. The government exe­mpted vehicles for passenger and goods transport and of foreign diplomats and missions from capital value tax (CVT).

In the budget, the government had introduced CVT on all types of motor vehicles either having engine capacity exceeding 1,300cc or 50kWh in the case of electric vehicles. The government restored exemption, retrospective from July 1, on allowance and perquisite paid or allowed outside Pakistan by the government to its citizens for services rendered outside the country. This was withdrawn through the Finance Act 2022.

At the same time, the government restored exemption from July 1 on the income derived by Kuwait Foreign Trading Contracting and Investment Company or Kuwait Investment Authority being dividend of Pak-Kuwait Investment Company in Pakistan as per sovereign agreement.

The government restored sales tax exemption on subsidies provided by the federal or provincial government on natural gas to consumers, including RLNG under the Sales Tax Act 1990. The government also restored sales tax exemption from July 1 on local supply of single cylinder agriculture diesel engines of three to 36 HP. This exemption was withdrawn vide Finance Supplementary Act 2022.

Pakistan has completed all conditions and prior actions required by the IMF under the 7th and 8th reviews for the disbursement of $1.18bn and complied with an additional funding arrangement of $4bn from Qatar, Saudi Arabia, and the United Arab Emirates and re-rolling of payable debt by China.