The All Pakistan Textile Mills Association (Aptma) has urged the Central Board of Revenue (CBR) to expedite the decision on exempting further tax on supplies by manufacturers of spun yarn.
Waqar Monnoo, Chairman, Aptma, talking to Business Recorder here, expressed the hope that the new Chairman of CBR would look into the matter and allow extension, till the budget 2004-05, of SRO 998(1)/2003 dated 23.10.2003. Through this SRO the Federal Government had exempted the supply of 'spun yarn' by manufacturers-cum-suppliers from the levy of 'further tax' (3 percent) subject to certain conditions.
This exemption expired on February 29, 2004.
Monnoo said that APTMA has already provided relevant information and explanations in this regard following detailed discussions Arif Saeed, Vice-Chairman Aptma, APTMA and Jehangir Azam Monnoo had with Shahid Ahmed, Member, Sales Tax and subsequent discussions Syed Shabbar Zaidi of Messrs. A.F.Ferguson & Co had with Chairman Monnoo said that APTMA has already provided relevant information and explanations in this regard following detailed discussions Arif Saeed, Vice-Chairman Aptma, APTMA and Jehangir Azam Monnoo had with Shahid Ahmed, Aptma Member, Sales Tax and subsequent discussions Syed Shabbar Zaidi of Messrs. CBR in early February, in respect of the special procedure for manufacturers-cum-suppliers of spun yarn rules notified through SRO 998(1)/2003 dated October 23rd, 2003.
As desired by the Central Board of Revenue, Aptma got two separate reports prepared on the exemption of further tax granted to the manufacturers-cum-exporters of spun yarn.
Aptma, on the basis of facts and economic indicators, considers that this exemption has resulted in positive financial and economic effects for the country which have been identified as under:
- The scheme brings more tax revenue to the exchequer than the amount foregone as further tax is lower than the extra amount of sales tax deposited by means of higher local sales to unregistered buyers.
- The amount of refund claims is reduced by introducing the scheme minimising the work load of the Collectorates of Sales Tax.
- The quantum of flying invoices is minimised, and
- The individual ratios of supplies to unregistered persons after adopting the scheme is improved as compared to the similar ratios of the corresponding months before adoption of the scheme resulting in less input tax adjustment and consequently more net revenue.
A.F.Ferguson & Co, after analysing: "impact on revenue collection, incentives or disincentives for documentation, net economic costs of exports-tax on exports, and non-genuine refunds", concluded that : "Based on the primary discussion on the subject and the facts available with us, we are of the opinion that the action of exempting further tax on supply of spun yarn by the manufacturer-cum-suppliers will result in positive aspects referred above. The financial impact of the same, based on the information provided to us, is around Rs 1.3 to 1.5 billion."
In the other study report prepared by Tax Haven, advocates & tax consultants, the following conclusion has been drawn:
"Since the Federal Government had extended exemption of further tax @ 3 percent vide SRO 998(1)/2003 made applicable w.e.f. 1.10.2003 on supply of spun yarn, so the effective rate of sales tax on supply of spun yarn became 15 percent of the sales value irrespective of the fact whether the yarn was sold to registered or unregistered persons. Obviously, the figures will show a slight decline during the period of exemption vis a vis the period prior to 1.10.2003. It is evident from the data furnished by Aptma that during the year 2002, from 1.7.2002 to 31.12.2002, further tax of Rs 0.027 billion (i.e.computed on sales tax inclusive values, provided by only 76 Aptma members who opted the scheme later on, amounting Rs 1.068 billion in aggregate) was charged and paid by certain member mills on supply of spun yarn made to unregistered buyers.
"One can think that the government exchequer has been deprived of this amount consequent to grant of exemption extended through the pilot project/scheme. But we should keep in mind the other side of the picture. During the period from 1.7.2002 to 31.12.2002, yarn valuing Rs 1.068 billion was sold to the unregistered buyers on which government received further tax of Rs 0.027 billion whereas as is alleged, a certain number of those invoices issued in the name of registered buyers were used as 'flying invoice' in order to save 3percent further tax.
Whereas during the year 2003, since there was no incentive to save 3percent further tax as exemption was available on yarn even if supplied to unregistered person, the supply to unregistered person increased in year 2003 as compared to those made in 2002.
During last six month of the year 2003 excluding August, 2003 yarn valuing Rs 7.257 billion was supplied to unregistered persons as compared to Rs 1.068 billion in last six months of the year 2002.
Thus additional sales tax revenue @ 15percent amounting Rs 0.807 billion was deposited in the exchequer on supply of increased quantity. As there was no incentive to issue flying invoices, the supplier issued invoices in the name of actual un-registered buyers and those invoices were not used for claiming adjustment/refund of input.
"In this way, not only the phenomenon of issuance of flying invoices has been reduced but 15 percent sales tax which was being repaid in the form of adjustment/refund of input tax was also saved. The net six monthly impact of the scheme can be summarised as follows :
(i) The government lost further tax of Rs 0.027 billion during last six months of 2003 (based on sales results of pre-admissibility of the scheme).
(ii) The government saved input tax of Rs 0.807 billion during last six months of 2003 (based on the sales results of post-admissibility of the scheme).
(iii) The phenomenon of issuance of flying invoices has been reduced since the manufacturers cum suppliers of spun yarn have no incentive to save 3percent further tax.
"The estimated annual impact based on the above computations would reveal that the exchequer was benefited to the extent of Rs 1.56 billion by means of the scheme extended to the suppliers-cum-manufacturers of spun yarn."
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