The Federal Board of Revenue (FBR) has received representations of the field formations to clarify that registered importers and manufacturers of vegetable ghee and cooking oil will pay 17 percent Federal Excise Duty (FED) on these products whereas distributors, wholesalers and retailers will pay 17 percent sales tax on the same commodities. Sources told Business Recorder that the FBR is expected to issue a clarification on legal issues arising out of the Finance Act 2019.
Chief Commissioner Regional Tax Office Bahawalpur requested FBR Member Inland Revenue Policy to clarify that the vegetable ghee and cooking oil have been made chargeable to FED @ 17% by virtue of the new Sr. No.2 of the First Schedule to the Federal Excise Act, 2005. However, Sr. No. 24 of the Sixth Schedule to the Sales Tax Act, 1990 has not been omitted. From this it appears that registered importers and manufacturers shall pay FED@ 17percent on these products, while distributors, wholesalers and retailers shall pay 17percent sales tax on the same. This understanding may be confirmed.
The ghee and cooking oil industry informed the FBR that as the edible oil sector was working under special procedure till 30th June, 2019 and paying 16%+ Rs1/kg FED as final tax liability without any adjustment, a number of members had substantial stocks of duty/ tax paid raw material/finished goods on 1st July, 2019 which was not adjustable under previous regime. FBR has so far neither issued any notification for adjustment of already paid tax/FED nor has changed the sales tax return form to cater for this need, despite the fact that a limited time is left to file the sales tax return for tax period July, 2019.
In view of the said position, the FBR is requested to amend the monthly return form to provide a provision in it for adjustment in the return of July of FED/Sales Tax already paid on raw material/finished products as declared in the stock statement submitted with the return of June, 2019.
If more time is required by FBR for amendments in return form as suggested and also in view of Eid Holidays, the date of filing sales tax return for tax period July may be extended to 31st August 2019, the industry added.
Chief Commissioner of the said RTO raised the issue with the FBR that it is brought to your kind notice that different taxpayers have raised certain issues or ambiguities after the implementation of the Finance Act 2019 which requires clarification by the Board:
Vide newly inserted Sr. No. 68 and 69 of the Eighth Schedule to the Sales Tax Act, 1990, "frozen prepared or preserved sausages and similar products of poultry meat or meat offal" and "meat and similar products of prepared ,/frozen or preserved meat or meat offal of all types including poultry, meat and/fish are chargeable to sales tax @ 8percent. On the other hand, Sr. No. 82 and 83 of the Sixth Schedule exempts the same products, excluding those sold in retail packing under a brand name and trade mark.
In addition, Sr. No.2 of the Sixth Schedule also exempts "meat of bovine animals, sheep and goat, excluding poultry and offal, whether or not fresh, frozen or otherwise preserved, or packed". Taxpayers as well as officials are confused by these apparently conflicting provisions. On combined reading, the it is of the view that such meat products which are sold in retail packing under a brand name and trade mark are liable to sales tax @ 8percent, while the rest are exempt. This view may be confirmed, Chief Commissioner said.
Similarly, iron and steel products have been made liable to FED@ 17% by the new Sr. No. 58 of the First Schedule to the Federal Excise Act, 2005, chargeable in sales tax mode by virtue of Sr. No.4 of the Second Schedule thereto. But since FED is only payable by manufacturers and importers, taxpayers are of the view that wholesalers, dealers and retailers of iron and steel products are not required to charge either FED or sales tax @ 17% on their supplies. This may be clarified.
While FED is collected in sales tax mode in terms of section 7(1) of the Federal Excise Act, 2005, section 7(2} prescribes that other provisions of the Sales Tax Act, 1990 relating to levy/ exemption from sales tax, registration, book keeping, invoicing, etc. shall be applicable only if notified by the Board with the approval of the Federal Minister-in-charge. No such notification has been issued. Therefore, taxpayers are of the view that they are not required to follow the provisions of sales tax, especially for charging further tax under section 3(lA) of the Sales Tax Act, 1990 on supplies to unregistered persons, and obtaining CNIC of consumers under section 23 of the Sales Tax Act, 1990 where transaction value exceeds Rs50,000. This may be clarified, in the context of both "iron and steel products" as well as "vegetable ghee and cooking oil".
The general view of taxpayers is that in case of goods chargeable to FED in sales tax mode, further tax under section 3(1A) of the Sales Tax Act, 1990 is not applicable. The Board may therefore consider imposition of further duty @ 3 percent in terms section 3(3A)of the Federal Excise Act, 2005 on such goods to avoid loss of revenue.
Chief Commissioner RTO said that the Sr. No. 95 of the Sixth Schedule to the Sales Tax Act, 1990 has been omitted, which means that the "vessels for breaking up" are now chargeable to sales tax on their import. Apart from this, after rescinding the special procedure applicable to ship-breakers, "ship plates, bars and other long re-rolled products" have been made excisable in sales tax mode by virtue of new Sr. No. 58 of the First Schedule and Sr. No.4 of the Second Schedule to the Federal Excise Act, 2005. Thus, it is clear that the ship-breaker shall charge FED at the time of sale of the mentioned products, and be entitled to adjust the sales tax paid on the imported vessel. However, according to Sr. No.3 of the new Fourth Schedule to the Federal Excise Act, 2005, the minimum production of "ship plates and other re-rollable scrap" has been prescribed at 85percent of the weight of the vessel imported for breaking up. But "other re-rollable scrap" has not been made excisable under S. No. 58 of the First Schedule. It may therefore be clarified that this "other re-rollable scrap" as well as the remaining 15percent of the weight of the vessel are chargeable to sales tax.
The value of steel bars, billets, ingots, ship plates, etc. has been fixed by SRO 697(1)/2019 dated 20th June, 2019 in exercise of the powers u/s 2(46) of the Sales Tax Act, 1990 specifically stating that these values are "for the purpose of payment of sales tax on ad valorem basis, at the rate as applicable to specified in sub-section (1) of section 3 of the Act". However, as these products are now chargeable to FED, and no notification has been issued u/s 7(2) of the Federal Excise Act, 2005 as pointed out, taxpayers are claiming that SRO 697(1)/2019 does not apply to them, Chief Commissioner questioned.
Both gold and silver in un-worked condition have been made chargeable to sales tax @ 1% by Sr. No. 61 and 62 of the Eighth Schedule to the Sales Tax Act, 1990. However according to the condition in Sr. No. 63 thereto, no input tax adjustment is to be allowed except of the tax paid on gold. Due to this, the tax paid on silver cannot be adjusted. It may be clarified if this is intentional.
"Supplies as made from retail outlets as are integrated with the Board's computerized system" have been made chargeable to sales tax @14% in terms of the new Sr. No. 66 of the Eighth Schedule to the Sales Tax Act, 1990. It further states that "if the supplied goods are finished fabric, and locally manufactured finished articles of textile and textile made ups and leather and artificial leather" these are subject to additional condition that they have maintained 4% value addition during the last six months. Retailers are asking as to how they will adjust the whole input tax when their purchases are made at 17percent and supplies are made at 14%.
Furthermore, section 8B(l) of the Sales Tax Act, 1990 restricts a registered person from adjusting input tax in excess of 90percent of the output tax, but for retailers, section 8B(6J further adds that if the retailer does not integrate his retail outlet in the prescribed manner, the adjustable input tax is reduced by 150/0.Reading both provisions together, it means that retailers who do not integrate their retail outlets shall not be able to adjust more than 75% of their input tax. This understanding may be clarified.
Other implementation problems may also be clarified, such as the rate applicable where a retailer has integrated some, but not all of his retail outlets, Chief Commissioner of the said RTO added.
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