The article "Two parallels concessionary regime working" on 12th April front page of your newspaper seems to imply that on the one hand the exemption of sales tax on plant, machinery, equipment and spares has been withdrawn by way of amending SRO 549 (I)/2008 dated 11-06-2008 through SRO 230 (I)/2011 dated 15-03-11 and on the other, the same concession is still available under SRO 575 (I)/2006 dated 05-06-2006.
For the kind information of the columnist I would like to explain that apart from zero-rating of sales tax available under serial number (3) of amended SRO 549 (I) 2008 dated 11-06-2008 the other concessions available under SRO 549 (I)/2008 to industrial as well as commercial importers claiming exemption under this notification were that the condition of local manufacture was not applicable and also withholding tax was chargeable at a reduced rate of 1% in terms of clause (9) of Part II of the Income Tax Ordinance, 2001 as goods covered under this notification attracted zero-rating.
The exemption under SRO 575(1) 2008 thus is now available only to machinery, equipment and capital goods (which also includes parts) to Industrial importers, provided it is not being manufactured locally and to commercial importers on machinery and equipment (not spares) not being manufactured locally.
Both industrial as well as commercial importers are now required to pay withholding tax @ 5.75% under SRO 575 (I)/06 which was just 1% if exemption under SRO 549 (I)/2008 was claimed. I would like to ask the columnist of the article if machinery is imported, which are not manufactured in Pakistan, what is the harm if the much-needed investment comes into the country, which is so lacking at present.
Also the import of machinery is to be encouraged and not discouraged. It is also probably not commonly known that the SRO 575 primarily relates to the engineering industry where some sectors of this industry are under special procedure and where sales tax is not adjustable. Thus by scrapping the exemption against the SRO 575 would tantamount to forcing the manufacturer to pay 17% extra for machinery imported which is not available locally.
This extra sales tax was not accounted for when the feasibility of import of machinery was made. Such a high tax will completely throw the feasibility of any project in disarray and lead to non-performing loans on the financial banks balance sheet.
EDB on all forums are advocating investment by the engineering sector, which will completely dry up if such arbitrary measures of increasing taxes are taken by the government on an ad hoc basis. By highlighting this issue, a negative impression is being given that manufacturers are trying to manipulate the situation.
This is not the case as the exemption was there when the feasibility of the project was taken, orders placed and LC opened and orders were placed abroad, because there was no local source of the machinery. Thus the manufacturer will be penalised for no fault of its own if the SRO 575 is withdrawn as suggested by your article. In the light of what has been explained above there is neither any anomaly nor it can be said that two parallel concessionary regimes are working simultaneously.