The new government is planning to withdraw zero-rated facility and impose standard rate of tax on all zero-rated items including poultry feed, dairy products and several other items in the budget 2013-14, besides enhancing general sales tax rate to 17 per cent from current ratio of 16 per cent, sources said.

The zero-rated items included dairy products, bicycles, wheel chairs, energy savers, sewing machine, household goods, cotton seed, bakery products, stationary, exercise books, writing, drawing and marking ink, pens and pencil and constructions material for Gwadar Export Processing Zone.

The sources said that the government has to take bold steps to enhance General Sale Tax to increase revenue collection along with other measures to broaden the tax base, as Federal Board of Revenue is facing a considerable shortfall in projected revenue collection for the current fiscal year due to low tax ratio.

Sources said that the new government will withdraw sales tax zero-rating facility on different items in its upcoming budget. This will bring a number of zero-rated items within the sales tax regime in the new fiscal year (2013-14). Sources said that the FBR has already compiled a list of items subjected to sales tax zero-rating on the domestic stage.

The proposal is to withdraw sales tax zero-rating facility on all these items and impose standard rate of 17 percent sales tax on these zero-rated items.

Sources said that the budget makers have asked the FBR to delete most of the zero-rating items from the SRO 549(I)/2008. SRO 549(I)/ 2008 - the most important notification. This notification is related to the zero-rating on certain goods subject to certain condition.

Official sources in Finance Ministry said that fiscal deficit would be a major problem not only in the current fiscal year but also for the coming year due to high subsidies for power sector and massive shortfall in revenue collection. “Now the Section 153A of the Income Tax Ordinance 2001 would again become applicable from July 1, 2013, requiring every manufacturer to collect income tax at the rate of 0.5 per cent of the sales from distributors, dealers and wholesalers from next fiscal year.

Through Finance Act, 2012-13, a new section 153A has already been incorporated, requiring every manufacturer to collect from distributor, dealers and wholesalers, income tax at the rate of 0.5 per cent of their sales.

They said the new govt may consider these measures in budget proposals as a compulsion, admitting that increase in GST would fuel inflation in the country but the government has to take such a difficult decision. It is to be noted that existing 16 per cent GST is relatively high as compared to 12 and 12.5 per cent in other countries of the world.

It is to be noted that presently zero-rating facility is available on plant, machinery and equipment (whether or not manufactured locally), including parts thereof and plant, machinery and equipment, whether locally manufactured or imported. Zero-rating is also applicable on re-meltable scrap, dedicated CNG buses and all other buses meant for transportation of forty or more passengers whether in CBU or CKD condition, trucks and dumpers, bicycles, trailers and semi-trailers for transport of goods and road tractors for semi-trailers, prime movers and road tractors for trailers whether in CBU condition or in kit form.