Mohsin Siddiqui (Chief Reporter)
The Federal Board of Revenue (FBR) has announced a significant update to the Sales Tax Act, 1990, which will see a 25% sales tax imposed on the import of mobile phones in Completely Built Up (CBU) condition valued over USD 500 per set. This update, issued on Wednesday, is part of the FBR’s revised Sales Tax Act, 1990, and Federal Excise Act, 2005, incorporating amendments made through the Finance Act, 2024, effective until June 30, 2024.
The revised Sales Tax Act specifies that mobile phones or satellite phones imported with a value exceeding USD 500 will be subject to a 25% sales tax. This tax rate applies to imports in CBU condition at the time of import or registration, such as the International Mobile Equipment Identity (IMEI) number by Cellular Mobile Operators (CMOs). In contrast, mobile phones valued at or below USD 500 will incur an 18% sales tax.
For locally manufactured mobile phones in CBU condition, an 18% sales tax will be applied regardless of their value. Similarly, the import of mobile phones in Completely Knocked Down (CKD) or Semi Knocked Down (SKD) conditions will also be subject to an 18% sales tax, irrespective of their value.
The updated Sales Tax Act introduces a new definition of “tax fraud,” which encompasses the intentional understatement or underpayment of tax liabilities or the overstatement of entitlement to tax credits or refunds. This includes actions such as submitting false returns or documents, withholding correct information, or otherwise violating the duties imposed under the Act.
To combat tax fraud, the FBR has established the Tax Fraud Investigation Wing-Inland Revenue. This wing is tasked with detecting, analyzing, investigating, and preventing tax fraud. It comprises several units, including Fraud Intelligence and Analysis, Fraud Investigation, Legal, Accountants, Digital Forensic and Scene of Crime, Administrative, and any other units as notified by the Board through the official Gazette.
The Act mandates that any person or class of persons may be required to integrate their electronic invoicing systems with the Board’s Computerized System for real-time sales reporting, as specified by the Board.
The updated Act stipulates severe penalties for those who engage in tax fraud. Individuals submitting false or forged documents, destroying or falsifying records, or knowingly making false statements will face a penalty of Rs25,000 or 100% of the evaded tax amount, whichever is higher. Additionally, they could face imprisonment for up to five years if the evaded tax is less than one billion rupees, or up to ten years if the evaded tax exceeds one billion rupees, along with a fine equal to the evaded tax amount.
The imposition of a 25% sales tax on high-value mobile phone imports is a significant step by the FBR to increase revenue from non-tax sources. This move is part of a broader strategy to enhance the government’s fiscal space amidst rising expenditures. By targeting high-value imports, the FBR aims to capture a larger share of revenue from the growing demand for premium mobile devices.
However, this tax hike may impact consumers and businesses involved in importing and selling high-end mobile phones. The increased cost could lead to higher prices for consumers or reduced profit margins for businesses, potentially affecting sales volumes and market dynamics.
