FBR needs to clarify legal position in certain cases: experts

RECORDER REPORT

ISLAMABAD: The Federal Board of Revenue has to clarify whether the manufacturers of sales tax exempted items such as medicines under the Sixth Schedule of the Sales Tax Act 1990 would be liable to 0.5 percent tax against the sales made to dealers, distributors and wholesalers from next fiscal year.

Tax experts told Business Recorder here on Saturday that the FBR should not demand 0.5 percent tax on sales made to dealers, distributors and wholesalers of items mentioned in the Sixth Schedule of the Sales Tax Act 1990. As the items specified in the Sixth Schedule of the Sales Tax Act 1990 have been exempted from sales tax, the same should not be subjected to the 0.5 percent tax. The FBR has to clarify the legal position in cases where the manufacturers of certain items have been exempted from sales tax.

On the other hand, another tax expert has an entirely different viewpoint. He opined that the new law of documentation is dealing with the Income Tax Ordinance 2001. The collection of 0.5 percent tax on sales made to dealers, distributors and wholesalers has nothing to do with the Sales Tax Act 1990. As income tax law has imposed this levy, the items specified in the Sixth Schedule of the Sales Tax Act 1990 would be subject to 0.5 percent withholding tax.

Under Finance Bill (2012-13), every manufacturer, at the time of sale to distributors, dealers and wholesalers, shall collect tax at the rate specified in Part IIA of the First Schedule, from the aforesaid persons, to whom such sales have been made. (2) Tax credit for the tax collected under sub-section (1) shall be allowed in computing the tax due by the person on the taxable income for the tax year in which the tax was collected.

When contacted, sources said that Finance Act 2011 has made it mandatory for the manufacturers to collect 0.5 percent tax on sales made to dealers, distributors and wholesalers. Principally, the tax department should not collect this 0.5 percent tax from manufacturers of items exempted from sales tax under the Sixth Schedule of the Sales Tax Act 1990. However, the legal position would be clear on issuance of any circular or clarification by the Board.