ISLAMABAD – The Federal Board of Revenue (FBR) has established a clear procedure for taxpayers to obtain exemption certificates for the exemption from advance income tax on imported goods.
The guidelines are detailed in Rule 40D of the Income Tax Rules, 2002 (updated up to September 08, 2020), which outlines the application process and verification requirements for obtaining the exemption certificate.
Rule 40D: Import under an Exemption Certificate
Application Process
1. Submission of Application:
• Taxpayers eligible under sub-section (1) of section 159 of the Income Tax Ordinance may submit an application for an exemption certificate through the Iris system.
• Supporting documents and data must also be submitted electronically.
Note: Until the Iris system is enabled for this purpose, manual submission of the application, supporting documents, and data to the Commissioner is acceptable.
Verification Process
2. Commissioner’s Verification:
• Upon receiving a complete application along with the prescribed documents, the Commissioner will initiate a verification process.
• The Commissioner may conduct necessary checks to determine:
• Whether the imported goods are relevant to the taxpayer’s exempt income under the Income Tax Ordinance.
• Whether the taxpayer, whose income is exempt from tax, is subject to a hundred percent tax credit under section 100C of the Ordinance.
• Whether similar goods previously imported by the taxpayer have not been supplied to associates or any other person in a non-arm’s length transaction.
Decision and Approval
3. Commissioner’s Decision:
• Within fifteen days of the taxpayer’s application, the Commissioner will issue a written order.
• The order will either:
• Approve the quantity of goods deemed fit for import by the taxpayer without the collection of tax under section 148 of the Income Tax Ordinance.
• Reject the taxpayer’s application.
Streamlined Process for Taxpayers
The introduction of Rule 40D provides a structured and transparent process for taxpayers seeking exemption certificates for imported goods. The inclusion of the Iris system streamlines the application process, enabling electronic submission for enhanced efficiency.
The verification process undertaken by the Commissioner ensures that the imported goods align with the taxpayer’s eligible activities and comply with the relevant provisions of the Income Tax Ordinance. The focus on preventing non-arm’s length transactions further strengthens the integrity of the exemption certificate process.
Moving Towards Transparent Taxation
The FBR’s commitment to providing clear guidelines and utilizing electronic platforms reflects a broader initiative to enhance transparency and efficiency within the taxation system. The exemption certificate process not only facilitates eligible taxpayers but also contributes to a more accountable and accessible tax administration.
With the implementation of Rule 40D, the FBR aims to simplify and streamline the process for taxpayers seeking exemption certificates for advance income tax on imported goods. The structured approach, supported by the Iris system, enhances the ease of compliance and contributes to the overall transparency and efficiency of the tax system. Taxpayers are encouraged to utilize these guidelines for a smoother application and verification process.
