Budget 2014-15: FBR to restrict ST registration to 'manufacturers'
The Federal Board of Revenue will restrict sales tax registration to the category of 'manufacturers' in different sectors specifically poultry farms, dairy farms, pharmaceutical companies, rice traders/exporters along with vegetable/fruit traders/exporters. Sources told Business Recorder here on Friday that the major policy decisions would be implemented to check misuse of sales tax registration within the category of 'manufacturers' in the upcoming budget (2014-15).
Copyright Business Recorder, 2014
The FBR is also planning to impose certain restrictions on obtaining registration as manufacturer through amendments to the sales tax registration rules from next fiscal year. According to sources, during the analysis of sales tax registration data at the Central Registration Office, the FBR has identified certain issues, which require considered decisions by the Board. It has been noted that the persons engaged in exempt/non-sales taxable activities are also applying and insisting for registration. Secondly, persons are seeking status as-'manufacturer', who prima facie does not fulfil the criteria for manufacturer.
The classes of businesses in the first category include poultry farms, dairy farms, pharmaceutical companies, rice traders/exporters, and vegetable/fruit traders/exporters. In case of poultry farmers, a policy decision was taken that 'poultry farmers are manufacturers' and thus may be granted sales tax registration as manufacturer so that they may avail the benefit of SRO 727(1)/2011 dated 01.08.2011 on import of machinery. Reportedly, 157 poultry farms were granted registration with status as 'manufacturer'. This enabled them to import machinery at concessionary rates, claim refunds against electricity, diesel and other taxable purchases, and avail other benefits. However, it is pertinent to mention that during this period, poultry meat was zero-rated, so the policy could still be justified. After issuance of SRO.501(1)/2013 dated 12-062013, poultry products have become exempt. Under the changed legal situation, poultry farms may no longer be granted status as manufacturer, and the earlier registration status may be changed.
In case of dairy farms, sources said that since milk is still zero-rated, it for orders as to whether dairy farms may be continued to be given sales tax registration as 'manufacturer'. Under the existing law, the pharmaceutical products are exempt from sales tax. Therefore, it is proposed that sales tax registration may not be given to manufacturers or dealers of pharmaceuticals.
Sources said that the persons making exempt supplies (like rice, fruit and vegetables) and also exporting these goods are claiming registration. The Board has ruled in the past that all exported goods be treated as zero-rated. Previously, sales tax registrations have been granted to exporters of rice, fruit and vegetables. As such, it is proposed to continue this practice during the next fiscal year
In the second category are persons who do not fully meet the criteria as 'manufacturer'. Such persons do not have industrial electrical or gas connections. Some of them produce applications filed to the electricity distribution companies for such connections, while others claim that they are simply using generators. In certain cases, electrical connections are there, but the electricity bill is much lower than the threshold of cottage industry. They claim that they have not yet started manufacturing activities.
In some cases, no machinery or only minimal machinery/equipment is found installed. They claim that the machinery to be acquired/imported subsequently. In some cases, they provide evidence that machinery has been imported, but is lying at the port; In such cases, the FBR has proposed policy decisions to be taken in budget (2014-15). The applicants for status of manufacturer must have industrial or commercial electrical connection. However, in case they produce copy of application for industrial connection with proof of security deposit made to the electricity distribution company, it may be accepted. In case of self-generated electricity, the application may only be accepted in remote areas where there is no electrical supply. Verification of generator with its capacity from the LRO may be obtained.
Secondly, the manufacturer status may not be denied merely on the ground that the electricity bill is lower than threshold. In such cases, other factors such as the level of investment, location (ie industrial estate), and other evidences of manufacturer may be considered. Manufacturing status may be allowed where there is evidence of imported machinery lying at the port, but only where there is industrial/commercial electrical connection, location is shown in an industrial area, and level of capital declared is above Rs 1 million, sources added.