ISLAMABAD: The Federal Board of Revenue (FBR) is reviewing a proposal of the fertiliser sector to grant exemption from an income tax provision of the Finance Act 2020, which disallows expenditure attributable to sales made by taxpayers to unregistered persons, where sales to such unregistered persons equal or exceed Rs100 million per annum.

In this connection, the FBR has received a presentation of the fertiliser sector Tuesday.

The FBR officials informed that the proposal is under examination of the tax authorities.

According to the industry, the fertilisers manufacturers were facing challenges with the implementation of the recent provisions of Section 21(q) of the Income Tax Ordinance inserted through Finance Act 2020, coupled with provisions of Section 73(4) of the Sales Tax Act.

These provisions led to a significant increase in fertilisers manufacturing and import cost.

The FBR has granted exemption from GST Act 73(4) subject to providing information about the dealers.

Industry has already submitted the required information and expected the FBR to consider the request for exemption from ITO 21(q) on the same basis.

Under the provisions of both Section 21(q) of the ITO and Section 73(4) of the Act, the FBR has been empowered to exempt certain persons or class of persons by notification in the official gazette.

The industry, therefore, seeks exemption hereunder, based on following industry-specific circumstances and the ensuing hardships faced by industry dealers with sales tax registration: First, the fertiliser industry operates with a simple value chain, where dealers operate on very limited margins to the extent of 2%-3% of sale price.

Second, almost all the dealers are fully registered for income tax purposes and are subject to minimum tax regime under Section 113 of the Income Tax Ordinance.

Tax is withheld by manufacturers/commercial importers at 0.7 percent of sale price for income tax filers. For non-filers, there is already a higher tax deduction of 1.4 percent.

Third, due to minimal value addition and margins, majority of the sales tax is collected upfront at the time of initial sale by the manufacturers/commercial importers.

Copyright Business Recorder, 2021