Plant, machinery import: full adjustment of input tax may be allowed

The government is likely to announce full adjustment of input tax paid on the import or locally purchased capital goods including plant, machinery and equipment to facilitate investment during the upcoming budget 2011-12. Sources told Business Recorder here on Friday that the zero-rating on plant, machinery and equipment including parts thereof whether manufactured locally or imported has been withdrawn through amendment in SRO 549(I)/2008 from March 15, 2011.
At the same time zero-rating facility on the said item was abolished through SRO.230(I)/2011. The FBR has received proposals of different chambers, federations and trade bodies to restore zero-rating of sales tax on capital goods since it increased the cost of doing business by around 20 percent and the adjustment of input tax in 12 instalments was resulting in cash flow/liquidity crunch and thus escalating financing cost. The FBR has proposed that section 8 of the Sales Tax Act 1990 may be suitably amended to allow full adjustment immediately after import or local purchase. In case the proposal has been accepted by the policy makers, the whole amount of input tax would be available to the importers in lump sum on import and local purchase of machinery and equipment.
In this connection, the FBR is expected to amend the section 8 (tax credit not allowed) for implementation of the decision. In case the FBR restore the zero-rating facility on plant and machinery, there would be no need to amend section 8 of the Sales Tax Act for allowing full adjustment of tax credit on the plant and machinery.
It is important to mention that stakeholders including private sector has strongly requested the FBR to restore zero-rating facility on the plant and machinery, sources added.
The Board had withdrawn sales tax exemption on the import of machinery, equipment and other related equipment imported by commercial and industrial units under a customs SRO.575(I)/2006. The FBR has amended SRO.575(I)/2066 through an SRO.448(I)/2011 under which sales tax exemption would not be applicable on the import of machinery, equipment and other capital goods imported by industrial undertakings and commercial importers.