The Federal Board of Revenue (FBR) has announced major 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.
Effective immediately, the revised tax measures impose a 25 percent sales tax on the import of Completely Built Up (CBU) mobile phones worth over USD 500.
Import tax on mobile phones:
25% tax on CBU cell phone sales over $500.
18% tax on CBU cell phone sales of $500 or less.
Local production tax:
CKD/SKD import tax:
18% sales tax on mobile phones imported in CKD/SKD condition, regardless of value.
The imposition of a 25 percent sales tax on high-value mobile phones aims to generate additional revenue for the government, but is expected to have a significant impact on consumers and the mobile phone market.
Imported CBU phones valued at $500 or less will be subject to an 18 percent sales tax. In addition, locally manufactured mobile phones in CBU status and imports in CKD/SKD status will be charged 18 percent sales tax, regardless of their value.
Action against tax fraud
In addition to revising sales tax rates, the updated sales tax law introduces a comprehensive definition of “tax fraud,” which includes underreporting or failure to pay taxes, overstating tax credits or refunds, and submitting false documents or withholding information to avoid paying taxes.
To effectively combat tax fraud, the FBR has set up a dedicated tax fraud investigation department comprising various specialized units.
Penalties for tax fraud are severe, including a fine of Rs 25,000 or 100% of the tax lost, whichever is higher. Offenders can also face up to five years in prison for tax evasion under one billion rupees and up to ten years for tax evasion of one billion rupees or more, along with other fines.
