Leading export-oriented sectors: five percent levy on inputs blocks consignments

The sudden imposition of higher rate of 5 percent income tax and sales tax at stage of value addition on hundreds of consignments imported by Karachi-based commercial importers has blocked clearance of raw materials and inputs consumed by five leading export-oriented sectors.
Sources told Business Recorder here on Thursday that the Pakistan Chemicals & Dyes Merchants Association (PCDMA) has submitted a letter to the Federal Board of Revenue (FBR) to immediately intervene to stop the customs officials of Karachi from wrong interpretation of the SRO-1012 (I)/2011 (revamped zero-rating regime).
According to the details, the commercial importers have strongly objected to the SRO-1012(I)/2011, which has imposed 5 percent sales tax on commercial importers. At the same time, the Customs department is misinterpreting the said SRO and levying value Addition Tax and enhanced rate of 5 percent income tax entirely against the spirit of zero-rated regime.
Resultantly, hundreds of consignments of commercial importers have been blocked in Karachi creating confusion among the business community and affecting the entire supply chain. If such kind of blockage of inputs consumed by zero-rated sectors continues, it might create shortage of such raw materials, which may have direct impact on the leading export sectors of the country, sources said.
The commercial importers have informed the FBR that the goods notified in SRO/1012 are still covered under zero-rated regime even if imported by commercial importers. Hence, despite levy of 5% Sales Tax at Customs stage, the benefit of SRO/638 should be given. Secondly, the SRO derives it powers not only for sub-section 9 of part II of Second schedule but also from section 53(2) of Income Tax Ordinance and notifies all the goods on which 1% Income Tax is to be collected. Hence, even on stand-alone basis, the benefit should be allowed under SRO/638.
The commercial importers have further requested the tax authorities to resolve this matter at the earliest as a large number of consignments are lying un-cleared at port and millions of rupees revenue is stuck up. The commercial importers have further argued that the goods for 5 export sector falling under zero-rated regime were cleared by Customs U/S283 without levy of VAT, as goods were exempt from this levy by virtue of being under zero rated regime. After implementation of SRO/1012, 5 percent Sales Tax has been levied at import stage on commercial importer.
The Customs department is therefore, now levying 3% VAT on these goods as well. In both Sales Tax Act as well as Income Tax Ordinance, the exemption is given to goods under zero-rated regime of sales tax. These goods shall still be supplied at zero-rated sales tax under condition No (iv) of said SRO. Thus VAT should not be levied. It is absolutely clear that the purpose of SRO 1012 was not to annul Zero-Rating regime rather it is just revamping the said regime introducing uniform rate. Hence, the benefits allowed under Sales Tax and Income Tax for Zero-rating regime should continue under SRO 1012, sources added.