Zero percent ST on CNG buses import: FBR refuses to support BoI proposal

The Federal Board of Revenue (FBR) has refused to support a proposal of the Board of Investment (BoI) for zero percent duty on compressed natural gas (CNG) buses, imported by the Punjab Government.
Official documents, available with Business Recorder, show that at a recent meeting of the Cabinet Committee on Investment (CCoI), presided over by Prime Minister Yousaf Raza Gilani, the BoI said that the Government of Punjab has established Lahore Transport Company (LTC) as a wholly-owned company under section 42 of the Companies Ordinance, 1984.
The objective of the LTC is to establish a modern, environment-friendly and efficient transport system in Lahore. To achieve the objective, in November 2010 proposals from potential bus operators for induction of new buses were invited and LTC issued Letter of Award in favour of Foton Pak Bus Company (Pvt) Ltd, in February 2011, as operator of the project.
At that time, dedicated CNG buses and all other buses, meant for transportation of 40 or more passengers, whether in CBU or CKD condition, were subject to sales tax at zero percent.
Consequently, feasibility of the project was based on zero percent sales tax. Foton Pak Bus Company (Pvt) Ltd, accordingly, placed an order for 111 buses having total value of $ 8,968,139.881 at $ 80,794.05 per bus) to Beiqi Foton Motors Limited, China. However, on June 3, 2011, the facility of zero percent sales tax on CNG dedicated buses was withdrawn and they were subjected to 16 percent sales tax.
The CCoI was also informed that the first batch of the 56 buses arrived in October 2011 and FBR released these with the undertaking that Foton will deposit sales tax if the said rate is not reduced to zero percent within 60 days.
The second batch of 54 buses was unloaded on November 6, 2011 and was also released with the same condition. The BoI, therefore, proposed that import of CNG/ LPG buses should be subject to zero percent sales tax in line with plant and machinery which has been exempted from Sales Tax vide SRO 727(1)/2011.
During ensuing discussion, the CCoI was informed that in March 2011, the Government took a conscious decision to bring all sectors under sales tax regime and zero rating was abolished even in respect of agriculture inputs. Besides, sales tax on buses will not affect the company as it will be ultimately pass on to the passengers travelling by those buses.
Another point was made regarding availability of CNG and the meeting was told in categorical terms that it cannot be ensured. It was stated that CNG buses can be converted to LPG, but that may be costlier proposition. Besides, LPG infrastructure is not available.
It was pointed out that CCoI is a forum for taking major policy decisions. It was explained to the CCoI that contract for import of buses was signed when there was zero percent sales tax and, as such, the demand for exemption of CNG buses is justified.
It was suggested that a committee should examine the matter and submit its recommendations for consideration of the Government. It was also stated that despite the ban imposed by the Government on opening new CNG stations, Ogra has granted permission for new CNG stations. This aspect needs to be investigated. It was explained that new Chairman of Ogra will be appointed soon, after fulfilling requisite formalities. His appointment would hopefully deal with such issues effectively.
After detailed discussion, the CCoI constituted a committee comprising Secretary Finance (convenor), Secretaries Petroleum, BoI and Chairman FBR to review the matter including commitment made with the company, if any, and submit its recommendations for consideration of ECC.