FBR issues draft rules for allowing reduced income tax rate on import of raw materials

FBR issues draft rules for allowing reduced income tax rate on import of raw materials

ISLAMABAD: Federal Board of Revenue (FBR) has issued draft rules for grant of concessional tax rate on import of raw materials and capital goods by manufacturers and exporters.

The FBR issued SRO 615(I)/2020 on Thursday for making amendment to Income Tax Rules, 2002. The draft rules have been issued to implement the Twelfth Schedule introduced to Income Tax Ordinance, 2001 through Finance Act, 2020.

According to the amendments the FBR introduce rule 40B for initiation of reclassification procedure, which states that a taxpayer being an importer of a goods may apply to the FBR to reclassify imported goods in the Twelfth Schedule to the Ordinance, if:

(a) A capital goods has not been classified in Part I; or

(b) A raw material has not been classified in Part II.

An application shall be examined by the Committee on imported goods

The board [FBR] may, suo moto, reclassify goods to Part III of the Twelfth Schedule to the Ordinance if it is found to be finished goods.

Another Rule 40C introduced for formation of committee on imported goods.

The committee on imported goods shall consist of the following members, namely:

(a) Member Inland Revenue Policy, FBR – Chairman

(b) Member Inland Revenue Operation, FBR – Member

(c) Member Customs Policy, FBR – Member

(d) Chairman National Tariff Commission – Member

(e) Chairman Engineering Development Board – Member

The chief income tax policy shall act as secretary to the committee.

If the chairman of the committee is satisfied that the matter merits consideration, he shall place it before the commission, by way of convening a meeting including a virtual meeting or by way of circulation.

An application for reclassification shall be accepted if approved by majority.

Rule 40D to deal with decision of the board.

Upon receipt of the recommendation of the committee under rule 40C, the chairman FBR may –

(a) Reclassify such goods as it may deem fit after taking into consideration the recommendations of the committee on imported goods;

(b) Refer the matter back to the committee for further examination of additional aspects as may be noted by the board; or

(c) Reject the application of the taxpayer for reasons to be recorded in writing.

Rule 40E has been introduced under which a taxpayer shall apply for import under reduced rate:

A taxpayer desirous of importing goods classified under Part III of the Twelfth Schedule to the ordinance as raw material for its own use shall apply to the board through IRIS, and submit the following documents and data in electronic form, namely:

(a) The site plan of the manufacturing unit indicating the location of the premises and the details of the total area, covered area and manufacturing area and separate storage areas for manufacturing goods, factory rejects and wastages;

(b) Complete details of the type of machinery installed;

(c) The installed production capacity per day, the division of shifts in a day, the total shifts during the last assessed tax year, and the average production per shift;

(d) The complete manufacturing process flow, clearly indicating, inter alia, the following, namely –

(i) The stage at which local and imported raw materials shall be consumed;

(ii) The stage at which finished goods shall be manufactured;

(e) Inventory statement, consumption statement and input-output ratios of locally procured and imported goods for the last assessed tax year and the period starting on the first day after the last assessed tax year and ending on the day on which an application under rule 40E is made.

(f) An estimate of advance tax year sub-section (4A) of section 147 of the Ordinance, if not already furnished;

Provided that till such time IRIS is enabled for the purpose of this sub-rule the application and supporting documents and data may be submitted manually to the secretary of the verification committee.