HIGHLIGHTS

(Sales Tax & Federal Excise)

(Budgetary Measures FY 2021-22)
(Aimed to take effect from 01.07.2021)

SALES TAX

The proposed budgetary measures pertaining to Sales Tax for FY 2021-22 are:

1. The minimum annual threshold of turnover from all supplies for cottage industry
is proposed to be increased from Rs. 3 million to Rs. 10 million (Section
2(5AB) is referred).

2. The threshold of shop area in case of furniture outlet/showrooms is proposed to

be increased from 1000 square feet to 2000 square feet for inclusion in tier-1
retailer (Section 2(43A) is referred).

3. Public limited (Listed on Pakistan Stock Exchange) companies are proposed to

be excluded from the purview of section 8B i.e. instead of 95% they shall claim
adjustment of 100% input tax against the output tax during the tax period (Section 8B is
referred).

4. A separate section introduced for allowing extension of time for furnishing of

return
(Section 26AB is referred).

5. Exemption is proposed to be granted to art and printing paper for publication

and printing of Holy Quran (Sixth Scheduled is referred).

6. Exemption on import of CKD kits for electric vehicles by manufacturers granted

by Tax Laws (Amendment) Ordinance, 2021 is proposed to be incorporated in the Sixth
Schedule.

7. To facilitate international athletes, exemption to goods temporarily imported by

athletes/sportsmen granted by Tax Laws (Amendment) Ordinance, 2021 is proposed to
be incorporated in the Sixth Schedule.

8. Tax exemption to auto disable syringes granted vide Tax Laws (Second Amendment)
Ordinance, 2021 is proposed to be incorporated in the Sixth Schedule.
9. To facilitate farmers and encourage storage of grain, tax exemption on locally
manufactured silos is proposed to be granted till 30.06.2026.

10. Reduced rate of sales tax @ 1% on locally supply of electric vehicles granted vide Tax
Laws (Amendment) Ordinance, 2021 is proposed to be incorporated in the Eight
Schedule.

11. In order to address litigation issue, fixed tax on SIM cards is proposed to be deleted
with effect from 1st July, 2020.

12. Exemption from value addition tax on import of electric vehicles, CKD kits for small
car, 2-3 wheelers, HCVs and all these vehicles in CBU conditions was granted vide Tax
Laws (Amendment) Ordinance, 2021 is proposed to be incorporated in the
Twelfth Schedule.

13. For facilitation purpose, the concept of constructive payment through vice-versa
adjustment subject to conditions envisaged therein is proposed to be introduced through
new Proviso in section 73(1) of The Sales Tax Act, 1990.

14. To provide relief to the registered persons, the benefit of compensation for
delayed payment of refund is also proposed to be extended to those persons in whose
case order under section 66 is passed (Second Proviso in Section 67 of Sales Tax
Act, 1990 is referred).

15. For promoting ease of doing business, the concept of Common Identifier Number
is proposed to be introduced (Section 21B is referred).

16. For establishment of Border Sustenance Markets, exemption from sales tax is proposed
to be granted on food related and other consumable goods (New addition of Table-4 of
Sixth Schedule is referred).

17. Rising prices of locally manufactured small cars is a major concern for low
earning families. Accordingly it is proposed that small cars upto engine capacity of
850cc may be exempted from value added tax (VAT) besides reducing sales tax rate
from 17% to
12.5% (Eight and Twelfth Schedules are referred).

18. The sale of goods through online market place is proposed to be brought into the sales
tax net by deeming the online market place as supplier in respect of third party sales
through their platform (Addition of sub-section (18A) in Section 2, insertion of clause
(f) in Section 2(43A) and clause (c) in Section 3(3) of The Sales Tax Act, 1990).
19. For specified goods, it is proposed that it may be made mandatory for manufacturers of
such goods to obtain brand license for each separate brand or SKU (New Section 40E is
referred).

20. Section 56C provides for prize scheme to promote tax culture. To ensure that the said
incentive is not misused, a new sub-section is proposed to be inserted to provide for
randomize “mystery shopping” (Sub-Section (2) in Section 56C is referred) .

21. The rate of sales tax on potassium chlorate is proposed to be increased from Rs. 80 per
kg to Rs. 90 per kg in addition to 17% standard rate (Eight Schedule is referred).

22. Sixth Schedule is proposed to be streamlined and exemptions other than relating
to basic food items, health and education are proposed to be withdrawn.

23. Eighth Schedule is proposed to be streamlined and reduced rates other than relating to
basic food items, health and education are proposed to be brought into standard regime.

24. The definition of tier-1 retailer is streamlined through insertion of a new clause
whereby a retailer who has acquired point of sale accepting payment through debit or
credit cards from banking companies or any other digital payment service
provider authorized by State Bank of Pakistan is also included in the definition of tier-1
retailer (Section 2(43A)(g) is referred).

25. By adding “Cash Book” in Section 22(1) has been amended to streamline the
requirement of record keeping (Section 22(1) is referred).

26. Provisions regarding sharing of data with foreign countries on reciprocal basis
were introduced through Tax Laws (Amendment) Ordinance, 2021 which is now
being incorporated in Sales Tax Act, 1990. Moreover, mechanism for assistance in
recovery of taxes on request from foreign countries on reciprocal basis is also
proposed by inserting sub-section (3) (Section 56A is referred).

27. Reclaimed lead and used lead batteries is an unorganized sector, therefore, entire
amount of sales tax in respect of sales of such goods is proposed to be
withheld at source under Eleventh Schedule.

28. Sales tax on sugar is proposed to be levied on retail price by including the said product
in Third Schedule, excluding supplies made as an industrial raw material
to pharmaceutical, beverage and confectionary industries (Third Schedule is referred).
29. Zero-rating is proposed to be withdrawn from Petroleum Crude Oil, parts/components
of zero-rated plant and machinery, import of plant and machinery by petroleum and gas
sector and supply, repair and maintenance of ships (S. Nos. 1, 6, 10 & 11 of Fifth
Schedule to the Sales Tax Act, 1990 are referred).

30. Import of plant, machinery and raw material by Special Technology Zone is proposed to
be exempted from sales tax.

31. In order to introduce umbrella Export Facilitation Scheme by Customs

Wing, exemption on import and zero-rating on local supplies in respect of raw
materials, components, parts and plant and machinery to authorized exporters is
proposed.

32. Under Islamabad Capital Territory (Tax on Services) Ordinance, 2001, the export
of services is proposed at the rate of 0%.

33. The Levy chargeability of Sales Tax shall be made through raising Sales Tax Invoice at
the time, at which the goods are delivered or made available to the recipient of the
supply. (w.e.f 01-07-2021)
 FEDERAL EXCISE

The proposed budgetary measures pertaining to Federal Excise Duty (FED) for FY 2021-22 are:

1. Exemption is being given from levy of FED to the industrial units located in FATA and
PATA.

2. The provision to revise return without prior approval of the Commissioner-IR which is
available in Sales Tax Act, 1990 is now proposed to be made available in
Federal Excise Act, 2005.

3. Exemption from federal excise duty to 4-wheelers granted vide Tax Laws
(Amendment) Ordinance, 2021 is proposed to be incorporated in the Federal
Excise Act.

4. The rate of federal excise duty on telecommunication is proposed to be reduced from

17% to 16%.

5. Payment on account of Merchant Discount Rate (MDR) is proposed to be

excluded from the purview of FED.

6. For establishment of Border Sustenance Markets, exemption from federal excise duty is
proposed to be granted on food related and other consumable goods.

7. Rising prices of locally manufactured small cars is a major concern for low
earning families. Accordingly it is proposed that small cars upto engine capacity of
850cc may be exempted from federal excise duty (Section No.55B(a) amendment as
proposed in First Schedule to Federal Excise Act is referred).

8. In order to introduce new Export Facilitation Scheme, 2021, conditional exemption on

import and zero-rating on local supplies in respect of raw materials, components, parts
and plant and machinery to registered persons is proposed (S. No. 25 of Table-1
of Third Schedule to Federal Excise Act is referred).

9. Federal excise duty on fruit juices, syrups, squashes etc; and steel billets, ingots etc; is
proposed to be withdraw (Amendment in S. No.57 & 58 of Table-1 of First Schedule to
Federal Excise Act is referred).
10. In order to reap reasonable revenue from this sector, federal excise duty (FED)
on mobile phone calls exceeding three minutes @ Re 1 per call, SMS message @ Re.
0.1 per SMS, and internet data usage @ Rs. 5 per GB is being proposed. This will result
into mild taxation of a broad spectrum of population (Table-II of First Schedule to the
Federal Excise Act, 2005 is referred).

11. Electronically heated tobacco products are also proposed to be brought into the tax net
by inserting new S. No. 8c of Table-1 of the First Schedule to the Federal Excise Act,
2005.

12. For specified goods, it is proposed that it may be made mandatory for manufacturers of
such goods to obtain brand license for each separate brand or SKU (insertion of Section
45AA is referred).

13. Enabling provision has been inserted in respect of request from a foreign jurisdiction
under a tax treaty, a multilateral convention, and inter-governmental agreement or
similar agreement or mechanism, (Section 14(4) of FE Act is referred).

14. Provisions regarding sharing of data with foreign countries on reciprocal basis
were introduced through Tax Laws (Amendment) Ordinance, 2021 which is now
being incorporated in Federal Excise Act, 2005. Moreover, mechanism for
assistance in recovery of taxes on request from foreign countries on reciprocal basis is
also proposed by inserting sub-section (3), (Section 47A of FE Act is referred).
 IN ORDER TO REFRESH SALIENT FEATURES IN
RELATION TO ST & FE AS IMPLEMENTED
THROUGH TAX LAWS (AMENDMENT) ORDINANCE
2021 ARE REPRODUCED BELOW
Dear Sir,

With reference to above, the following salient features in relation to Sales Tax & Federal Excise
all effective from 11.02.2021, are brought for favor of your information:

SALES TAX:

1. By adding S. No.157 in the Sixth Schedule the Import of CKD Kits by

local manufacturers for Small Cars and SUVs with 50 kwh battery or below and LCVs
with
150 kwh battery or below of respective Headings have been exempted from Sales Tax till
30.06.2026;

2. By adding S.No.158 in Sixth Schedule temporary import of goods into Pakistan

of respective Headings by International Athletes & Sportsmen which would be
subsequently taken back by them within 120 days of temporary import, have been
exempted from Sales Tax;

3. By adding S.No.71 in the Eighth Schedule the supply of following locally manufactured
or assembled electric vehicles (04 Wheelers) have been subjected to Sales Tax @ 1% till
30.06.2026:

a. Small Cars or SUVs with 50 kwh battery or below;

b. LCVs with 150 kwh battery or below.

4. By addition in Twelfth Schedule exemption from 3% VAT at import stage have been
granted to the following:

A. Till 30.06.2026, the CKD Kits and as well as in CBU condition of Electric Vehicles 4
wheelers (Small Cars or SUVs) with 50 kwh battery or below and of Electric LCVs 4
wheelers with battery of 150 kwh or below;

B. Electric Vehicles (2-3 Wheelers & HCVs) in CBU condition till 30.06.2025.
FEDERAL EXCISE:

By amending insertion in S.No.55 (relating to import) and 55B (relating to local manufacture)
the Electric Vehicles (4 wheelers) have been excluded from the purview of FED till 30.06.2026.

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