FBR imposes 18% GST on packaged food items to boost revenue

The Federal Board of Revenue (FBR) has announced the imposition of an 18 per cent General Sales Tax (GST) on packaged food items, including formula milk.

The announcement was made during a meeting of the Senate Standing Committee on Finance, chaired by Senator Saleem Mandviwalla. Amjad Zubair, Chairman of the FBR, informed the committee that the GST will be applied to all packaged items sold at departmental stores and large retail outlets, but will not affect unpackaged food items sold at general stores.

In response to concerns raised during the meeting, the committee recommended a reduction in the GST rate on formula milk due to its critical importance for infant health. Chairman Zubair acknowledged the significant tax revenue generated from formula milk and expressed the government’s willingness to consider a reduction in tax rates if companies agree to lower their prices.

The committee also addressed the issue of unregistered outlets selling formula milk, recommending that these outlets be blacklisted to ensure compliance with tax regulations.

It is notable that this move aligns with a demand from the International Monetary Fund (IMF). During recent talks with Pakistani authorities for a new loan agreement, the IMF recommended increasing the general sales tax to 18 per cent.

The IMF mission observed that Pakistan’s current sales tax collection system faces challenges, with the federal government collecting tax on commodities and the provinces on services. The IMF suggested that sales tax collection should be centralized under the federal government and that GST exemptions be eliminated.

This development is part of broader efforts to streamline Pakistan’s tax system and enhance revenue collection as the country seeks financial assistance from international lenders.