Chairman Federal Board of Revenue (FBR) Mohammad Jehanzeb Khan said on Tuesday that FBR will relax a major condition for oil exploration and production (E&P) companies regarding development of software under SRO 678(I)/2004 in the budget (2019-20). The FBR chairman informed Public Accounts Committee (PAC) here at the Parliament House that a provision of development of software by the E&P companies has now become redundant after implementation of the WEBOC (web-based customs clearance system) at ports.
After amendment in the SRO 678(I)/2004 for E&P companies in budget (2019-20), the revised provision would be applicable prospectively. However, it cannot be done retrospectively, he added.
Under SRO 678(I)/2004, the federal government has exempted machinery, equipment, materials, specialised vehicles or vessels, picks-ups, helicopters, aircraft, accessories, spares, chemicals and consumables, as are not manufactured locally, imported by the Exploration and Production (E&P) Companies, their contractors, sub-contractors and service companies, from customs duty in excess of 5 percent and sales tax. However, this is subject to the condition that each importer or E&P company shall develop a software within a period of one year and shall establish an online connection with the customs authorities for regulating the imports made under this notification.
FBR Member Legal & Accounting - Customs Fazal Yazdani Khan informed the committee that the director general Petroleum Concession has proposed deletion of the condition of the development of software. The WEBOC served the purpose while on the other hand FBR is desirous to remove the condition form the said SRO. Jehanzeb Khan said, "We will hopefully abolish the said condition in coming budget. It will be done in budget for (E&P) companies."
According to the audit objection raised by the Auditor General of Pakistan (AGP), SRO 678(I)/2004 provides the detailed procedure for import, utilisation and disposal of plant, machinery and equipment including vehicles by the E&P companies, their contractors and service providers.
In 1,190 cases, Model Customs Collectorates (MCCs) Islamabad and Appraisement (East) Karachi allowed exemption of customs duty and allied taxes to E&P companies, their contractors and service providers on imported plant, machinery and equipment of Rs 3,636.053 million during 2015-16. None of the E&P companies have met the following requirements of the said SRO: None of E&P companies and their contractors had made any effort to develop software despite lapse of 12 years which was required to be done within a period of one year. Secondly, none of the manufacturers-cum-importers (service providers) submitted consumption certificates which were required to be made within a period of one year form the date of issuance of the SRO. Thirdly, some E&P companies and their contractors had imported items as surplus scrap, junk or obsolete.
Customs department responded that the software has been developed in the shape of WEBOC and can be verified. The amount of Rs 7.834 million has been recovered from two companies.
The audit contested that the response of the customs department on the observance and conditions laid down in SRO 678(I)/2004 is contradictory. On one hand department is of the view that the WEBOC served the purpose while on the other it is desirous to remove the condition from the said SRO. Later, the PAC has settled the audit para of the AGP pertaining to the abovementioned issue.