Key Takeaways:
i) Prime Minister Shehbaz Sharif has blocked a proposal to waive the 18% sales tax on local supplies to exporters due to concerns about the IMF’s reaction.
ii) The decision was made to protect local industries, which are at a disadvantage compared to tax-free imports.
iii) The government is considering imposing an 18% sales tax on imports to address the disparity.
Islamabad, Pakistan – April 11, 2025 – Prime Minister Shehbaz Sharif has halted a proposal to eliminate the 18% sales tax on local supplies of commodities, raw materials, and machinery for registered exporters, citing potential objections from the International Monetary Fund (IMF). The decision came during a meeting at the Prime Minister’s House prior to his departure for Belarus.
The proposal, put forth by a committee led by Planning Minister Ahsan Iqbal, aimed to reinstate a sales tax exemption under the Export Facilitation Scheme (EFS) that was initially introduced in June of the previous year. The committee also suggested reintroducing insurance guarantees, which had been replaced by bank guarantees in February.
The 18% sales tax on local supplies was introduced in the budget, creating an anomaly where imports of the same goods were not taxed. This led to exporters favoring imports over local procurement, negatively impacting domestic industries.
According to an official statement, the Prime Minister has instructed relevant authorities to ensure a level playing field for local industries and to incorporate input from industrial and trade bodies into the upcoming federal budget. There is a possibility that the government may impose an 18% sales tax on imports of these commodities to end the disparity, which is hurting local industries.
In June 2024, Finance Minister Miftah Ismail announced an income tax relief of Rs47 billion for the salaried class. The 18% sales tax on local supplies was introduced in the budget, creating an anomaly where imports of the same goods were not taxed. This led to exporters favoring imports over local procurement, negatively impacting domestic industries. The Export Facilitation Scheme (EFS), launched in 2021, was designed to boost exports by exempting duties and taxes on imported raw materials, spare parts, and machinery. However, the scheme has faced misuse, prompting the government to tighten conditions.
