ISLAMABAD: The government is planning to rationalise duties and taxes on essential food items, reduction in sales tax on locally-produced dairy products, and discourage import of raw materials which are locally manufactured or produced such as coal in the next budget (2021-22).

Sources told Business Recorder, here on Monday that the government is considering to raise duties and taxes on the import of raw materials which are locally manufactured or produced.

For instance, the duties and taxes would be raised on the import of coal in the coming budget (2021-22).

If custom duties, additional customs duties, and regulatory duties cannot be imposed on such imported raw materials/inputs (locally available) under the World Trade Organization (WTO) obligations, the government may impose advance income tax or withholding tax on such imports.

The proposals under consideration is to reduce sales tax from 10 percent to a lower level for the locally-manufactured dairy products sold in retail packing under brand names such as flavoured milk; yogurt; cheese; butter; cream; desi ghee; whey and milk and cream, concentrated or containing added sugar or other sweetening matter.

The government has yet not finalised the reduced sales tax rate on dairy products, but it would be brought down from 10 percent to a reasonable level.

The government is also considering to rationalise duties and taxes on the import of dairy equipment and machinery, whereas, the incidence of the duties and taxes on the import of dairy items may be raised in the coming budget.

The same principle of imposing advance withholding tax would apply in case of imported dairy products where the government cannot raise customs duty, regulatory duties, and ADCs under the WTO obligations.

The proposals were deliberated in detail during the last meeting of the Ministry of Commerce, the Federal Board of Revenue, the Ministry of Industries and Production, and the Ministry of National Food Security on essential food items including dairy products.

According to sources, the Overseas Investors Chamber of Commerce and Industry (OICCI) and the Pakistan Dairy Association have proposed restoration of the zero-rating regime on the dairy sector in budget (2021-22).

The government is facing a serious challenge in providing such sales tax relief to various sectors under the policy of withdrawal of sales tax exemptions and concessionary or reduced rates of sales tax in the coming budget (2021-22).