The Federal Board of Revenue (FBR) would continue with a major distortion in the sales tax regime by retaining Third Schedule of the Sales Tax Act 1990 in budget (2011-2012) under which manufacturers are paying sales tax of all the stages of value addition of consumer items having printed retail price.
Presently, items chargeable to sales tax at the retail stage included fruit juices and vegetable juices, ice cream, aerated waters or beverages, syrups and squashes, cigarettes, toilet soap, ddetergents, shampoo, toothpaste, shaving cream, perfumery and cosmetics, tea, powder drink, milky drink, toilet paper and tissue paper, spices sold in retail packing bearing brand names and trade marks and shoe polish and shoe cream.
Sources said that the manufacturers have to pay sales tax on all the stages of value addition of consumer items having printed retail price. Under the Value Added Tax (VAT) regime, the tax is to be paid on value addition attributed to each stage, starting from manufacturing down to retail sale at the end to the consumer. A number of dealers, distributors and wholesalers of different consumer items are still out of tax net despite efforts to bring the intermediate linkages in supply chain into the taxation system and resultantly the tax actually chargeable at each stage on value addition is not being recovered, sources stated.
On the other hand experts said that on items included in this Schedule, sales tax is recovered from the manufacturer at the retail price which is against the concept of VAT. The amendments had been made to reduce number of items to three in the past. In the recent past a regressive approach has been adopted for the same that needs to be changed and items from the Third Schedule provisions be gradually deleted for bringing them into the standard sales tax regime. Contrary to this, the FBR may continue with the Third Schedule of the Sales Tax Act with the argument that, ” Third Schedule needs to be carried on due to special circumstances prevailing in Pakistan”, sources added.