Sales tax on fabric imports reduced

KARACHI: The Federal Board of Revenue (FBR) issued a number of statutory regulatory orders (SROs) on Friday and reduced the sales tax on import of fabrics against the commitment the government made with the International Monetary Fund (IMF).


The government – in the memorandum on economic and financial policies for 2013-16 presented to the IMF for the latest loan program – had committed to finalise the plan to eliminate the SROs granting exemptions or concessions by December end of 2013.


“The government has already stopped issuing any new tax concession or exemption (including customs tariff) through SROs except by an Act of parliament, and will also approve by end-December 2015 legislation to permanently prohibit the practice,” it added.


However, the FBR issued four SROs related to the sales tax reducing it to three percent from five percent on import and local supplies of fabric with value addition tax rate at two percent.


Tax experts said instead of incentivising the consumers the government again bowed down to certain lobbies by giving concession and exemption. They also said that it would lead to revenue loss.


“We demanded a 17 percent sales tax on import and local supplies of fabric,” said Shakeel Ahmed Dhingra, former vice president of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI). “It’s a political decision,” he added.


Besides, the FBR also unveiled a mechanism for issuance of refund that was not available previously.


The notification said that refunds against local supplies would be admissible only subject to pre-refund audit in case of value addition of less then 10 percent.


A senior tax official said that previously the refunds were not admissible.


In another SRO 896, a series of goods of home consumptions was deleted in Third Schedule of Sales Tax Act 1990 and made part of Sales Tax Procedural Rules, 2007.


Tax experts said that by doing this the issue of sales tax collection at retail stage would be resolved and manufacturer would add another two percent sales tax, which was also increased from 0.75 percent to the total sale price of goods.


The FBR, however, clarified that the revenue body had not imposed any new tax on household gas and electrical appliances, tiles, tyres etc.


These goods were subject to sales tax on retail price basis – which means that the sales tax of the complete chain from manufacturer till the manufacturer pays retailer in advance.


It said the business community approached FBR on grounds that that this system posed many practical problems for them and requested the body to do away with sales tax on retail price basis and agreed to pay two percent additional sales tax on the basis of actual value addition from manufacturer till retailer on all these items.


“This is, therefore, not a new tax or enhancement of existing rate but only a collection of tax, which even otherwise was payable by the supply chain,” according to the clarification.


In SRO 897, the FBR reduced the withholding sales tax rate from 20 percent to 10 percent of total sales tax that would be deducted by withholding agent on the sales tax invoice issued by persons registered as a wholesaler, dealer (including petroleum dealers) or distributor.

Source: The NEWS