Rs16bn Sales Tax Evaded by Tea Whitener Manufacturers

Manufacturers and suppliers of tea whitener have been involved in sales tax evasion worth Rs16 billion, according to the Federal Board of Revenue (FBR).

A detailed four-year long audit of tax-paying tea whitener producers showed that tea whitener has been illegally reported as a dairy product by the manufacturers and suppliers of this product to evade sales tax.

The Large Taxpayers Office (LTO) Karachi, which conducted this audit, also reported that as the milk or products manufactured using dairy products are exempted from sales tax according to the law, manufacturers of tea whitener claimed zero-rated sales tax by declaring the whitener as milk.

After chemical examination, the classification committee of Pakistan Customer also declared that the tea whitener is not milk and should be classified under Pakistan customs tariff (PCT 2106.9090).

According to LTO Karachi, tea whitener producers claimed that their product came under the ‘tea max’ (a compliant product) category, which essentially was condensed milk with added sweeteners.

However, the Pakistan Council of Scientific and Industrial Research also explains that drinking milk should contain at least 6.5 percent of milk or vegetable fats. However, the products manufactured as tea whiteners contained only 5.95 percent of vegetable fats, which is below the required specification.

In March 2018, a Supreme Court of Pakistan order also directed such companies to remove the word milk from their products. Powdered milk manufacturing companies were also required to mention ‘it is not natural milk’ on their product packaging.

Despite the Supreme Court order in place, tax evasion in the tea whitener industry has been common. The FBR has allowed recovery of the amount from the manufacturers and suppliers of tea whitener against the wrong claim of sales tax exemption.