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KARACHI: Steel merchants have proposed amendments to the rules of tax exemptions facilities available to the Federally Administered Tribal Areas (Fata) and Provincially Administered Tribal Areas (Pata) on import stage aimed at avoiding tax evasion.

All Iron Steel Merchants Association (AISMA), in its budget proposals for the year 2022, has proposed that all the duties and taxes should be charged at the import stage and once the goods meant for Fata and Pata are manufactured only then they shall be refunded.

According to AISMA Chairman Hammad Poonawala, the Federal Board of Revenue (FBR) must withdraw or amend the procedure of the tax exemptions available to the Fata and Pata. The Fata and Pata have been given exemption from sales tax till June 30, 2023.

The incentives had been given for bringing tribal areas to the mainstream and triggering the development process and rehabilitating the underdeveloped area. However, some businessmen in the Iron and Steel sector have extremely manipulated this blanket exemption of sales tax, he said.

“These importers produce and sell goods in the developed parts of the country and showing production and consumption in tribal areas aimed at evading taxes. This abuse of exemptions has gained them a window of unnatural profits which should be going to the national exchequer,” he added.

Instead of providing the tax exemption on import stage, AISMA has proposed that all the duties and taxes should be charged at the time of import and may be refunded once the goods meant for Fata or Pata are manufactured.

Implicating this practice will not only discourage illegal imports and misuse but also help the honest manufacturers in the area. The importers using this concession should be made liable to show proof of industrial cycle so the targeted development of the area can be achieved and the local population can take the gains from increased employment opportunities in Fata/Pata area.

According to budget proposals, various SROs such as SRO No. 655 and SRO No. 565 have been issued for the iron and steel sector to exempt various industries from custom and other duties.

However, the SROs of the FBR on tax exemptions and concessions granted to the powerful lobbies and sectors have caused serious damage to the small and medium enterprises in Pakistan.

As per estimates, the cost of exemptions and concession in the last two fiscal years stood at Rs2.3 trillion. It is observed that not all but most of the industries are misusing these concessionary SROs for their personal gains. Most of the time material imported under concessionary SROs meant to be consumed in an industrial process is sold out in the market instead of being consumed as industrial raw material, the Steel Merchants Association maintained.

Hammad said that with these concessions, on one hand, deprives the rightful commercial importers of their part of trade activities and on the other hand results in loss of tax revenue for the collection departments. This issue was raised in last year's budget proposal as well and no action was taken against it, he added.

AISMA said that government must take this issue seriously as it is a major cause of revenue loss to the national exchequer.

The association suggested that those concessionary SROs should be withdrawn with immediate effect and an alternate procedure should be enforced to give benefit to the genuinely working industries.

In addition, the full amount of taxes and duties should be collected at the import stage without any exception and then after the completion of the industrial cycle exemptions should be granted to the companies who can produce the relevant corroborative documents proving the consumption of raw material in their industrial use.

In order to avoid the misdeclaration of goods, AISMA has also proposed a uniform rate of duty for both prime and secondary material, which could be 15 percent. This will stop misdeclaration and help contain revenue losses. It could also put an end to under invoicing which results in import tax evasions, it added.

AISMA has also highlighted that globally the Customs Tariffs on imports has never been the tool used to raise the revenue whereas, in Pakistan, import tariff constitutes a massive 47 percent of the overall revenue collection of the FBR.

Copyright Business Recorder, 2021

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