KARACHI: The Pakistan Business Council (PBC) has alleged that commercial importers are misusing registration as manufacturers to avail reduced tax rates on imports.
The PBC in its proposals for budget 2022/2023 submitted to Federal Board of Revenue (FBR), said many “commercial importers” have been importing goods under the garb of fake registration as “manufacturer” to attract reduced rate of custom duties and income tax.
Considering the fact that most of the commercial importers have been misusing the lower rate of tax otherwise available to manufacturers, therefore, FBR has reduced down the rate of tax at import stage to 1 per cent/2 per cent/5.5 per cent [on the basis of HS codes] for manufacturers as well as commercial importers.
However, instead of making rate of tax at par for both commercial importers and manufacturers, PBC recommends to place system-based controls to track those commercial importers involved in under invoicing and importing under the garb of registration as manufacturers.
PBC’s some specific measures proposed are:
a) A comparison of HS code wise electricity and gas expense to sales as well as import quantity ratio [to be computed from the income and sales tax returns] will help to identify commercial importers importing goods under the garb of registration as manufacturers. Unusual differences between various manufacturers of same category of goods should be investigated further as that could mean trading of imported goods instead of use for own manufacturing.
b) The difference between the rates of tax at import stage collected from commercial importers should at least be 2 per cent more than manufacturers. In order to allow commercial importers to claim adjustment of taxes deducted at import stage, commercial importers should be asked to present a certificate from their auditors that at least 70 per cent of imported items have been exported or sold to registered manufacturers. This will also help increase the overall tax base.
c) Monthly sales declared by commercial importers should be matched with sales declared in the annual income tax return as well as the credit entries in all business bank accounts. In case of any discrepancy, a reconciliation with justifiable reasons should be submitted by the commercial importers.
d) Online CREST system must be amended in a way to trace sales along with value addition thereon of person to whom supplies were made by commercial importer.
Through implementation of system-based controls, rate of tax at import stage from commercial importers can be kept 2 per cent higher than manufacturers, which at one end will generate revenue for the Government and at the same time will provide level playing field to manufacturers.
