SUNDAY APRIL 03: Five zero-rated sectors: FBR announces amnesty scheme for sellers, suppliers

April 04, 2011

RECORDER REPORT

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The Federal Board of Revenue has announced an income tax amnesty scheme for the sellers, suppliers and service providers to the five zero-rated sectors - textile, leather, carpets, surgical and sports goods and imposed reduced rate of one percent withholding tax on the local sales, supplies or services made or rendered to the five sectors.

The FBR has notified the decisions through issuance of SRO.288(I)/2011 issued here on Saturday to grant exemption of section 111 (unexplained income or assets) of the Income Tax Ordinance 2001 to sellers, suppliers and service providers to the five zero-rated sectors.

According to the decision, certain provisions of section 111 (unexplained income or assets) of the Income Tax Ordinance 2001 would not be applicable on the local sales, supplies or services made or rendered to five zero-rated sectors. After announcement of amnesty scheme on the sales tax side, another amnesty scheme has been announced for encouraging registration of sellers, suppliers, and service providers of five zero-rated sectors.

Secondly, the 3.5 percent withholding tax is applicable on supplies, services and contracts under section 153 of the Income Tax Ordinance 2001. As compared to the standard rate of 3.5 percent withholding tax, the FBR has imposed reduced rate of one percent withholding tax on the local sales, supplies or services made or rendered to five zero-rated sectors.

The amnesty scheme revealed that the checking of accounts under section 111 of the Ordinance 2001 would not be applicable to the amounts credited in the books of accounts maintained for period ending on June 30, 2011 by sellers, suppliers and service providers to the zero-rated sectors. This means that the local sellers, suppliers and service providers can credit any amount in their books of accounts and no question would be asked for source of investment.

The un-explained income and assets of such local suppliers to five zero-rated industries would not be probed by the officials of Inland Revenue. The amnesty scheme would be applicable to new cases of sellers, suppliers and service providers of sales tax zero-rated sectors, who get them registered by June 30, 2011.

The decision has been taken to encourage documentation without asking source of investment under section 111 of the Income Tax Ordinance 2001. Under section 111 of the Income Tax Ordinance 2001, where any amount is credited in a person's books of account; and the person offers no explanation about the nature and source of the amount credited or the investment, money, valuable article, or funds from which the expenditure was made or the explanation offered by the person is not, in the Commissioner's opinion, satisfactory, the amount credited, value of the investment, money, value of the article, or amount of expenditure shall be included in the person's income chargeable to tax under head, "Income from other sources". The amount referred shall be included in the person's income chargeable to tax in the tax year to which such amount relates, it added.

This provision of section 111 would not be applicable in cases of local sellers, suppliers, and service providers of five zero-rated sectors, who would get themselves registered with the tax department.

The section 111 of the Income Tax Ordinance 2001 pertaining to unexplained income and assets would not be applicable for the said categories of sellers/suppliers. According to SRO.288(I)/2011, the rate of deduction of withholding tax under clauses (a) and (b) of sub-section 1 of section 153 shall be one percent on local sales, supplies or service made or rendered to five categories of sales tax zero-rated sectors.