MBS TaxationDate: 15 March 2023
Source: EY Global – Pakistan Tax Alert
The Federal Government of Pakistan has announced significant changes in the taxation of goods and services, increasing both the Sales Tax and Federal Excise Tax (FET) rates. These changes impact a wide range of locally manufactured and imported goods, as well as certain services, with effect from February and March 2023. Businesses and consumers should prepare for the financial implications of these changes.
Increase in Standard Sales Tax Rate
Effective 14 February 2023, the general Sales Tax rate has been increased from 17% to 18% for local supplies and imports in Pakistan. Initially, certain goods listed in the Third, Eighth, and Ninth Schedules to the Sales Tax Act were excluded, but as of 24 February 2023, the increased rate of 18% applies generally to all imports and local supplies, except for items with pre-existing reduced rates or exemptions.
Amendments to the Eighth Schedule
The Eighth Schedule of the Sales Tax Act now includes higher rates for:
- Locally produced coal: PKR700 per metric ton or 18% ad valorem, whichever is higher
- Potassium Chlorate (KCLO3): 18% plus PKR60 per kg
Amendments to the Ninth Schedule
For cellular and satellite phones, the new Sales Tax rates are:
- Exceeding US$200 but not exceeding US$350: 18%
- Exceeding US$350 but not exceeding US$500: 18%
- Exceeding US$500: 25%
25% Sales Tax on Imported Goods
From 8 March 2023, a 25% Sales Tax rate applies to the import and supply of a wide range of goods including:
- Aerated water, juices, and sweetened beverages
- Ice cream, chocolates, and confectionery
- Shampoos, cosmetics, and shaving items
- Home appliances, furniture, carpets, and decorative items
- Vehicles in completely built unit (CBU) condition
- Food items such as pasta, tomato ketchup, jams, and preserved fruits
- Pets’ food, musical instruments, sunglasses, and jewelry
Locally Manufactured Vehicles
The 25% Sales Tax also applies to the supply of:
- SUVs and CUVs assembled/manufactured locally
- Vehicles with engine capacity 1400cc and above
- Double cabin (4×4) pick-up trucks
Increase in Federal Excise Tax (FET)
The Federal Excise Tax rate has also been increased effective 14 February 2023 for several products and services:
- Aerated waters and sugary beverages: 10–20% of retail price
- Cigarettes: Increased according to the on-pack printed retail price
- Cement: PKR2 per kg for Portland, aluminous, slag, and similar hydraulic cements
- International air travel: FET on club, business, and first-class air tickets varies by destination, e.g., PKR250,000 for North and South America, PKR75,000 for the Middle East and Africa, and PKR150,000 for Europe and Far East destinations
Implications for Businesses and Consumers
These tax changes are likely to increase the cost of a broad range of goods and services across Pakistan. Businesses should review their pricing structures, accounting systems, and supply chain arrangements to ensure compliance with the updated tax regulations. Consumers may experience higher retail prices, particularly for imported goods, vehicles, beverages, and luxury items.
For detailed guidance and compliance support, businesses and individuals are advised to consult tax professionals or reach out to EY Ford Rhodes, Karachi.
Contact:
EY Ford Rhodes, Karachi – Aamir Younas
[Full contact details available in EY’s Tax News Update: Global Edition (GTNU)]
The recent adjustments to sales tax and federal excise tax rates in Pakistan are poised to significantly impact the economic landscape in 2023. As these tax rates rise, it is imperative for businesses to conduct thorough assessments of their operational frameworks to adapt effectively. The implications of these changes extend beyond corporate finances, as consumers will likely face increased prices on a variety of products. In particular, sectors dealing with imported goods, vehicles, and luxury items are expected to experience notable price hikes. To navigate these complexities, stakeholders are encouraged to seek expert advice from tax professionals, ensuring compliance and strategic alignment with the new regulations. For detailed guidance and compliance support, businesses and individuals are advised to consult tax professionals or reach out to EY Ford Rhodes, Karachi. Contact: EY Ford Rhodes, Karachi – Aamir Younas [Full contact details available in EY’s Tax News Update: Global Edition (GTNU)] Furthermore, companies may need to reevaluate their pricing strategies to maintain competitive advantage amid the changing tax environment. Supply chain adjustments could also become necessary, as increased costs may shift sourcing decisions. Consumer behavior might evolve as buyers reassess their spending in light of higher prices, potentially favoring essential goods over luxury items. Long-term planning will be crucial for businesses to mitigate the effects of these tax increases and position themselves for sustainable growth. Engaging in proactive financial analysis will help organizations remain resilient during this transitional period.
As of 24 February 2023, the Sales Tax in Pakistan has been uniformly increased to 18%, impacting both imports and local supplies. Previously, certain goods were exempt due to their listing in the Third, Eighth, and Ninth Schedules of the Sales Tax Act, but this exclusion no longer applies. The increase in Sales Tax, alongside adjustments in the Federal Excise Tax (FET), signifies a substantial shift in the tax landscape, affecting various sectors. Businesses must adapt to these changes by reevaluating their financial strategies, ensuring all operations align with the new tax framework. In turn, consumers should prepare for potential price hikes on a wide array of products, particularly those categorized as luxury or imported items. For further assistance and compliance inquiries, it is highly recommended to consult with tax professionals, such as those at EY Ford Rhodes in Karachi.Generating… allocated towards public services and infrastructure development. Companies that fail to adjust their pricing strategies may face challenges in maintaining profitability. Moreover, industries Companies heavily are reliant now on facing imports the may challenge experience of more recalibrating significant their financial pricing strain models as to they accommodate navigate the the increased dual tax impact burden. of This higher shift taxes may and lead global to supply a chain reassessment issues. of Consumers supply are chains, likely with to some shift businesses their considering purchasing local habits alternatives in to response minimize to costs. these Additionally, changes, the favoring government local may products face over scrutiny imported over ones. how Ultimately, these the tax long-term changes effects impact of economic this growth tax and increase consumer will spending. depend Stakeholders on are the encouraged government’s to ability monitor to market manage reactions the closely, economic as repercussions these effectively. adjustments could influence investment decisions moving forward. Ultimately, proactive engagement and strategic planning will be essential for navigating this evolving fiscal environment.
