Machine import: telecom companies barred from claiming WHT relief

The Federal Board of Revenue (FBR) has barred the Commissioners of Inland Revenue from issuance withholding tax exemption certificates to the telecommunication companies on import of plant, machinery and equipment. The FBR on Wednesday categorically declared that the exemption certificate could only be issued to the units covered under the definition of the 'industrial undertaking'.
However, telecom companies are not covered under the definition of the 'industrial undertaking' and such companies are not entitled to exemption of advance tax under section 148 of the Income Tax Ordinance 2001. The FBR has strictly directed the Commissioners Inland Revenue to restrict exemption to only 'industrial undertaking', which does not cover telecommunication companies.
As a result of new FBR directive, the telecom companies can not obtain withholding tax exemption certificates on import of plant, machinery and equipment. According to Income Tax Circular 16 of 2010, issued here on Wednesday, Lahore High Court in WP No 247/2010 dated February 9, 2010 has directed that a uniform policy should be practised in allowing exemption on imports made by the taxpayers of similar trade engaged in the business of telecommunication. The issue was examined in the light of the directions of the High Court and applications filed by the telecommunication companies in various cases for grant of exemption certificates for non-deduction of advance tax under section 148 of the Income Tax Ordinance 2001 on import of plant, machinery, equipments, etc.
The FBR said that the exemption certificate under section 159(1)(a) of the Ordinance read with clause (V) of SRO. 947(I)/2008 can be issued by Commissioner of Inland Revenue to a person who imports plant, machinery, fixtures, fittings or its allied equipment for the purposes of setting up an industrial undertaking owned by such person, or for installation in an existing "industrial undertaking". However, Clause (29C) of section 2 of the Ordinance recognises only those undertakings as industrial undertakings which are engaged in the manufacture of goods or materials or the subjection of goods or materials to any process which substantially changes their original condition; ship-building; generation, conversion, transmission or distribution of electrical energy, or the supply of hydraulic power and the working of any mine, oil well or any other source of mineral deposits.
It has been observed that various field formations have been issuing exemption certificates to such taxpayers under section 159(1)(a) read with SRO.593(I)/91 dated June 30, 1991, which was superseded by a conscientious policy of FBR vide SRO 947(I)/2008 dated September 5, 2008, and which aimed to restrict issuance of exemption certificate only to an "industrial undertaking" engaged in the business of manufacturing and processing only. Since the Telecom sector taxpayers are not covered under the said definition of industrial undertaking, hence they are not entitled to exemption certificates under the provisions of SRO 947(I)/2008 dated 5th September, 2009.
It is therefore desired that while issuing an exemption certificate under section 159(1)(a) read with SRO 947(I)/2008 dated 5th September, 2008 the Commissioner of Inland Revenue must strictly adhere to the definition of "industrial undertaking" as given under section 2(29C) of the Ordinance, FBR added.