Karachi Chamber of Commerce and Industry (KCCI) has suggested the tax authorities to withdraw Value Added Tax (VAT) imposed on commercial importers in order to rectify anomaly in the law.
The KCCI in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR) said that a three per cent value addition sales tax at import stage on commercial importers of raw materials was removed in the Finance Act 2019-20 after long deliberations with FBR and Ministry of Finance for several years.
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It was agreed by FBR that the tax is unjustified because commercial importers do not add any value to raw materials. It is sold to SMEs without any change in form or any process. No inputs such as gas, electricity, labor or machinery are used hence 3 per cent VAT was an obvious anomaly.
Unfortunately, the very next year through Finance Act, 2020, amendment was made in the Twelfth Schedule to Sales Tax Act, 1990 –under the heading “Procedure and Conditions”, in condition (2), 3 per cent value addition sales tax has been imposed again on commercial import of industrial raw materials, thus restoring the anomaly.
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Also, after re-imposition of this 3 per cent VAT, the exclusion from Section 8 B (1) 2, provided to commercial importers under SRO 647 (I) 2007 was not restored. This has led to double taxation as importers are forced to pay extra 10 per cent value addition over and above 3 per cent paid at custom stage.
The outcome of these amendment resulted in dual anomaly in the Finance Bill, 2020-21.
A 3 per cent VAT cannot be imposed on raw materials where no value is added.
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Restriction of 90 per cent adjustment of input is tantamount to double taxation as importers of raw material forced to pay extra 17 per cent (10 per cent of 17 per cent) value addition over and above three per cent paid at customs stage under Section 8B of Sales Tax Act, 1990 through SRO 1190 (I)/2019.
The KCCI said that this obvious anomaly should be rectified and raw materials imported by commercial importers shall be excluded from the scope of condition (2) under “Procedures and Conditions” Twelfth Schedule of Sales Tax Act. Thus removing 3 per cent Value Addition Sales Tax on commercial importers which was re-Imposed unjustly.
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Importers of Finished products paying 3 per cent VAT at custom stage and having no local purchase should be excluded from application of Sec 8 (B).
The proposed amendment will remove an obvious anomaly and disparity in rates of sales tax on raw materials because all raw materials are ultimately consumed in the industry, and mainly by SMEs.