The Federal Board of Revenue (FBR) has introduced significant amendments to the Sales Tax Act, 1990, and the Federal Excise Act, leading to a notable increase in the prices of high-end mobile phones in Pakistan. The new tax measures, which are now in effect, impose a 25 percent sales tax on the import of mobile phones in Completely Built Up (CBU) condition valued at over $500. This change is part of the government’s strategy to generate additional revenue but is expected to have a considerable impact on consumers and the mobile phone market.
Under the revised regulations, the sales tax rates for mobile phones are as follows:
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.
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Local Manufacturing Tax:
- 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.
These measures aim to generate additional revenue but may also affect consumer behavior and the overall market dynamics for mobile phones in Pakistan. Additionally, the FBR has introduced comprehensive measures to combat tax fraud. The updated Sales Tax Act now includes a detailed definition of “tax fraud,” covering activities such as underreporting or underpaying taxes, overstating tax credits or refunds, and submitting false documents or withholding information to evade taxes.
To address tax fraud effectively, the FBR has established a specialized Tax Fraud Investigation Wing with various units focused on detecting and preventing fraudulent activities. Businesses may also be required to integrate their electronic invoicing systems for real-time sales reporting to ensure compliance.
Penalties for tax fraud are severe, including a fine of Rs25,000 or 100% of the evaded tax, whichever is higher. In cases of tax evasion below one billion rupees, offenders may face imprisonment of up to five years. For tax evasion amounting to one billion rupees or more, the imprisonment term can extend up to ten years, along with additional fines. These stringent measures are part of the FBR’s efforts to enhance tax compliance and prevent revenue losses due to fraudulent activities.
