Collection of ST/WHT at import stage: FBR likely to amend tax laws to remove anomalies

The Federal Board of Revenue (FBR) is likely to amend tax laws in budget (2015-16) for proper collection of sales tax and withholding tax at the import stage with accurate applicability of concessionary rate of sales tax on import of raw materials for textile sector under SRO.1125(1)/2011.
Sources told Business Recorder here on Saturday that the budget makers were examining budget proposals of Collector of Customs Model Customs Collectorate (MCC) Appraisement (West) Karachi for 2015-16 to remove flaws in collection of sales tax/WHT on imports.
According to the Collector Appraisement (West) Karachi, after announcement of the budget 2014-15, certain issues were faced at enforcement level while collecting sales tax and withholding tax (WHT). These issues were referred to the Board for guiding the field formations but those could not be resolved during the outgoing fiscal year (2014-15). Consequently, the importers in many cases have approached High Courts through filing writ petitions etc. It is proposed that the issues referred to the Board may be resolved through the Budgetary Measures for FY2015-16.
The first issue is related to the chargeability of higher rate of withholding tax at import stage at the arte of 5.5 percent from the beneficiaries ie textile spinning units under SRO 1125(1)/2011 dated 31.12.2011.
The second issue is related to the applicability of exemption from payment of sales tax under SRO.551(l)2008 dated 11.06.2008 (now Sixth Schedule of the Sales Tax Act, 1990) on import of raw materials for the manufacturing of disposable syringes and I.V. infusion sets etc. The third issue is related to the concessionary rate of sales tax on import of raw materials of textile sector prior to spinning stage under SRO 1125(1)/2011 dated 31.12.2011. Collector of Customs said that SRO 1125(1)/2011 dated 31.12.2011 was being misused due to its weaker structure. Moreover, an amendment has also been suggested in Sr.No 15 of Table-III of Sixth Schedule of the Sales Tax Act, 1990 which relates to promotion of renewable energy technologies.
It is suggested that while allowing any exemption from Sales Tax and Federal Excise Duty, PCT Code may invariably be given to make it system readable. In absence of PCT codes, not only the exemption remains vulnerable to misuse rather that also results in delays and inconvenience to the taxpayers.
In case of any identical conditional exemption given for the customs duty, the same formulation may be maintained for allowing exemption from sales tax or withholding tax.
The Collectorate further highlighted the issue of chargeability of higher rate of withholding tax at import stage at 5.5 percent from the beneficiaries ie textile spinning units under SRO 1125(1)12011 dated 31.12.2011. The Collectorate is of the view that provisions of Clause (9C) of Part-II of the Second Schedule to the Income Tax Ordinance, 2001, prescribing WHT at the rate of 1 percent for manufacturers and 3 percent for commercial importers are restricted to the items/commodities listed in SRO 1125(1)/2011 dated 31.12.2011.
Rate of sales tax on import of 'raw and ginned cotton' is 5 percent under serial number 5 of Table-I of the Eight Schedule to Sales Tax Act 1990. Thus, raw/ginned cotton is not covered under SRO 1125(1)/2011. Even prior to the Finance Act, 2014, raw and ginned cotton was kept out of it and exempted vide serial number 33 of SRO 551(1)/2008 dated 11.06.2008 and not vide SRO 1125(1)/2011 as has been contended by APTMA. The Board's clarification vide C.No1 (7)/WHT/2006 dated 1.1.2015 referred to in the representation by APTMA is only a reiteration of Clause (9C) of Part II of the Second Schedule to Income Tax Ordinance, 2001, and does not state that WHT at the rate of 1 percent shall be leviable on import of raw and ginned cotton which is out of the scope of SRO 1125(1)/2011, it said.
In wake of aforesaid levy of WHT at the rate of 5.5 percent on import of raw and ginned cotton seems correct. Board may examine this issue as well as eligibility or otherwise rest of 'pre-spinning stage' inputs of textile sector in terms of condition (ii) (a) of the SRO 1125(1)/2011 and issue necessary clarifications thereon to field formations for uniform application as already requested on 2.10.2014.
Regarding second issue, Collectorate said certain pharmaceutical companies are importing needles in bulk, plastic molding compound (medical grade), and the like goods for the manufacturing of Intravenous Infusion Sets and IV Solution Bags etc, stated to be used for filling of medicines. During the course of scrutiny, it was found that the said importers claimed exemption from payment of sales tax on the above imported items vide Serial No 11 of SRO 551(1)/2008 dated 11.06.2008, now Serial No, 105 of Table-I of the Sixth Schedule to the Sales Tax Act, 1990. The said exemption was found not admissible to them as the aforesaid imported items are neither raw material of pharmaceutical active ingredients nor of pharmaceutical products (which are defined and classified under Chapter 30 of the Pakistan Customs Tariff). The said matter was referred to the Board for issuance of advice whether the imported goods and the like meant for use in the manufacturing of disposable syringes and IV infusion sets etc ate entitled for exemption from payment of Sales Tax under the aforesaid provisions of law. The situation is again being brought to the knowledge of the Board for decision on the pending matter and issuance of appropriate orders at the earliest as a lot of government revenue has piled up in the form of securities.
Collectorate stated that with the issuance of amending SRO 154(I)/2013 dated 28.02.2013, import of all kinds of raw materials before the spinning stage were excluded from the purview of SRO 1125(1)/2011 dated 31.12.2011. However, out of such 'pre-spinning' stage inputs, only the import of 'raw and ginned cotton' was exempted by Federal Government from levy of sales tax vide SRO 551(1)/2008 dated 11.06.2008. Subsequently, through Federal Budget 2014-15, the said SRO has been rescinded and sales tax at the rate of 5 percent on import of raw and ginned cotton has been levied vide 8th Schedule to the Sales Tax Act, 1990.
The Collectorate is of the view that based on the same analogy whereby raw and ginned cotton has been excluded from the purview of SRO 1125(1)/2011, various other raw materials of textile sector as listed below which have not been subjected to 'spinning' as yet, also stand out of the purview of concessionary SRO 1125(I)/2011 dated 31.12.2011.
Board may examine the above issue of eligibility or otherwise for sales tax concession under SRO 1125(I) /2011 dated 31.12.2011 especially with reference to condition (ii) (a) of said SRO in respect of items (raw silk, raw wool, silk waste and cotton waste etc), all of which are 'pre-spinning' stage inputs and guide field formations accordingly. In case Board concurs with the view point of the collectorate, then all pre-spinning stage raw materials including the mentioned PCT Headings may be delinked from SRO 1125(1)/2011 in the system and instructions in this regard may be circulated to the field formations. Otherwise, the anomaly may be got removed through appropriate legal changes.