Export development strategy of EDB may be scrapped: Proposals rejected by FBR

Engineering Development Board's (EDB) 'National Engineering Exports Development Strategy (Needs) is likely to be scrapped as the Federal Board of Revenue (FBR) has turned down most of the tax incentives proposed in the plan, sources in FBR told Business Recorder.
These proposals are: (i) Levy of federal excise duty (FED) on technology acquisition; (ii) occupying domestic space for enabling exports; (iii) withholding tax on exports; (iv) zero rating of sales tax on exports; (v) export houses; (vi) engineering industry venture capital fund management company; (vii) common facility centres; (viii) testing laboratories and standard certification; (ix) training and skill development of technical workforce; and (x) training and skill development of management.
In its proposals, the EDB had argued that as per the income tax laws, exemption on ventures capital (VC) fund incomes is due to expire in 2014, most probably without benefiting anybody, proposing that income tax exemptions may be extended up to 2025.
FBR, in its reply rejected the proposal with the argument that extension of this exemption shall be re-evaluated 2014.
The EDB had also proposed that income tax may be exempted for Common Facility Centres (CFCs) to be established in the next five years. This exemption may be time-bound for a maximum period of ten years. The FBR turned down the proposal, clarifying that such generalised exemptions cannot be created in the Income Tax Ordnance 2001.
The EDB had recommended that income tax may be exempted on testing and standard certification laboratories to be established in the next five years. This exemption may be made time-bound for a period of ten years. The FBR replied that such laboratories that were making profits should pay income tax at par with other business activities.
The EDB, in its fourth proposal argued that financial capital required to start technical training and skill building institutions to serve the needs of engineering industry may be profiled through 'Engineering Industry Venture Capital Fund Management Company'. Such undertakings, it was proposed, may be treated as high-risk and long gestation.
The government may declare earnings out of such training and skill building institutions free from income tax for a period of ten years from the day of start of training courses subject to the condition that such institutions start their operation before December 31, 2015.
The government may partly subsidise the cost of training by picking up 50 percent of the cost from resources generated through Export Development Surcharge(EDS), contributed by the engineering industry out of its export earnings.
The FBR in its reply stated that exemption on income tax is already available to vocational technical and policy technical institutions for five years established between July 1, 2004 and June 30 2008 provided they are recognised by the Board of Technical Education or university or any authority appointed by the federal and provincial government. Further proposed exemption of ten years to training and skill building institution which start their operation before December 31, 2015 was not supported, being discriminatory in nature.
In another proposal, EDB had stated that division IV of part III of the First Schedule to Income Tax Ordnance 2001 may be suitably amended to reduce the rate of withholding income tax to 0.50 percent on exports of engineering industry. The FBR replied that withholding tax is deductible @ 1 percent on realisation of sale proceeds on account of export of goods under section 154 read with division IV of part III on the first Income Tax Ordnance, 2001. The proposed rate of 0.5 percent on exports by engineering industry is therefore not supported as the applicable rates on export is already at a minimum.
In its proposal six, the EDB had argued that withholding income tax rate for supplies of goods and services to registered 'Export Houses' may be reduced to be at par with tax rate applicable on exporters so that manufacturers of exported goods through Export Houses are treated as exporters.
The FBR replied that withholding tax is deductible @ 0.5 percent from payments on account on rendering or providing of services of stitching, dyeing, printing, embroidery, washing, sizing and weaving only to a direct exporter or export house. The extension of this facility to other suppliers of goods or services across the board is neither desirable nor practical, hence this proposal is not supported.
Other proposals of the EDB regarding DTRE scheme and customs have also been rejected by the FBR.