SRO 1125(I)/2011: Collectors request FBR to define industrial inputs

SOHAIL SARFRAZ

ISLAMABAD: Collectors of Customs have requested the Federal Board of Revenue to clearly define industrial inputs under the SRO.1125(I)/2011 to avoid confusion in levying lower rate of sales tax or zero-rating for the specified items for leading industrial sectors of the economy.

Sources told Business Recorder here on Saturday that there are certain industrial raw materials and inputs that have multiple usages. Some times certain raw materials can also be consumed by textile sector or other industries. Due to the absence of a clear definition of the "industrial inputs" under the SRO.1125(I)/2011, customs officials charge 5 percent sales tax on the import of industrial raw materials having multiple usage by the commercial importers. However, commercial importers argue that they have imported the industrial raw materials liable to 2 percent sales tax. The FBR has to clearly define the industrial raw materials and applicability of sales tax on them under the notification.

Sources said that the customs officials are confused whether 'finished fabric' or 'furnished fabric' ready for use by the general public is chargeable to sales tax at the rate of five percent under different sales tax clarifications issued by the FBR. Some Model Customs Collectorates have approached the FBR seeking clarification about the applicability of 5 percent sales tax on 'finished fabric' or 'furnished fabric'. In this connection, one of the Collector of Customs said that the Board vide letter C.No.3(2)ST-L&P/2011(Pt)-1674-R dated February 2, 2012 clarified that 'finished fabric' ready for use by the general public is chargeable to sales tax at the rate of five percent (5 percent) and value addition tax at the rate of one percent at the import stage. However, vide another letter C. No. 3(2) ST-L&P/2011(Pt) dated March 2, 2012 the Board further clarified that the item 'furnished fabric' is ready for use by the general public and hence, is chargeable to sales tax at the rate of five percent and value addition tax at the rate of one percent at the import stage for all types of importers including registered manufacturers of five zero rated sectors. This Model Customs Collectorate is of the understanding that the 'furnished fabric' as mentioned in the subject clarification is a typographical error and it refers to "finished fabric", if this understanding of the Collectorate is correct, the Board may like to issue a corrigendum in this regard.

Furthermore, with reference to the Collectorate letter of even number dated February 20, 2012, it is once again requested that a definition of "industrial inputs" may kindly be incorporated in the subject SRO to remove any ambiguity whatsoever.

The FBR had clarified the issue in the past. Model Customs Collectorate of Pakistan Customs Computerised System (PACCs) had sought a clarification regarding SRO 1125(I)/2011 ofDecember 31, 2012. The FBR had examined the issue in the light of relevant provisions of the sales tax law and clarified that 'finished fabric' is ready for use by the general public and hence is chargeable to sales tax at five percent and value addition tax at one percent at the import stage. It will apply on all types of importers including registered manufacturers of five zero rated sectors.

The FBR had further clarified that as per condition (iv) of the SRO 1125(I)/2011 all commercial importers, on import of goods useable as industrial inputs, shall be charged with sales tax at the rate of two percent along with one percent value addition tax at the import stage. It was further clarified that the item 'finished fabric' is ready for use by the general public and hence, is chargeable to sales tax at the rate of five percent and value-addition tax at the rate of one percent at the import stage, the FBR added.