The Federal Board of Revenue (FBR) has announced significant revisions to the Sales Tax Act, 1990 and the Federal Excise Act, resulting in a substantial increase in the prices of high-end mobile phones in Pakistan.
The revised tax measures, effective immediately, impose a 25 per cent sales tax on the import of mobile phones in Completely Built Up (CBU) condition valued at over $500.
Under the new regulations, the following sales tax rates apply:
- Import tax on mobiles:
- 25% sales tax on CBU mobile phones valued over $500.
- 18% sales tax on CBU mobile phones valued at or below $500.
- Local manufacturing Tax:
- 18% sales tax on locally manufactured CBU mobile phones.
- 18% sales tax on locally manufactured CBU mobile phones.
- CKD/SKD import tax:
- 18% sales tax on mobile phones imported in CKD/SKD condition, regardless of value.
The imposition of the 25 percent sales tax on high-value mobile phones aims to generate additional revenue for the government but is expected to impact consumers and the mobile phone market significantly.
For imported CBU phones valued at or below $500, an 18 percent sales tax will apply. Additionally, an 18 percent sales tax will be charged on locally manufactured mobile phones in CBU condition and on imports in CKD/SKD condition, irrespective of their value.
Crackdown on tax fraud
In addition to revising sales tax rates, the updated Sales Tax Act introduces a comprehensive definition of “tax fraud,” encompassing underreporting or underpaying taxes, overstating tax credits or refunds, and submitting false documents or withholding information to evade taxes.
To combat tax fraud effectively, the FBR has established a dedicated Tax Fraud Investigation Wing, comprising various specialized units. Businesses may be required to integrate their electronic invoicing systems for real-time sales reporting to ensure compliance.
Penalties for tax fraud are stringent, including a fine of Rs25,000 or 100% of the evaded tax, whichever is higher. Offenders may also face imprisonment of up to five years for evading taxes below one billion rupees and up to ten years for evading taxes amounting to one billion rupees or more, along with additional fines.
