KARACHI: The Federal Board of Revenue (FBR) has been suggested to allow adjustment of withholding income tax collected at import of raw material against the actual liability.

Karachi Chamber of Commerce and Industry (KCCI) in its proposals for budget 2022/2023 submitted to the FBR highlighted that by amendment to Section 148 of Income Tax Ordinance, 2001, through Finance Bill 2018-2019, withholding tax paid on import of raw materials by commercial importers has been converted to minimum tax and the importers have been taken out of Fixed Tax Regime (FTR).

READ MORE: KCCI suggests VAT removal for commercial importers

The chamber said that the collection of withholding tax at source is tantamount to putting the burden of tax-collection from undocumented entities on the compliant tax payers and compounds the burden by treating it as minimum tax.

Concept of treating withholding tax as minimum tax is unique and unfair as it leaves the scope for further squeeze on documented and compliant tax-payers. “Any Tax paid as withholding tax should be adjustable in order to promote the culture of direct taxation and reduce dependence on tax at source,” the KCCI said and added that the rates of withholding tax are already very high and akin to turnover tax.

READ MORE: FPCCI demands CNIC condition withdrawal

Giving proposals to the issue, the KCCI said the withholding income tax at import stage on raw materials should be adjustable against actual liability.

The concept of minimum withholding tax on import of raw materials may be phased out.

Further, distinction should be made between importers of finished goods and raw materials who mainly cater to the industry and are fully documented.

Giving rationale to the proposals, the KCCI said commercial importers who are a major source of revenue will be able to resume their business and contribute to revenue as well as promotion of SMEs.

READ MORE: FBR urged to wave further tax on providing CNIC number

The KCCI further highlighted that the Finance Bill 2021-2022, imported plant and machinery not manufactured locally, has been omitted from 8th Schedule of Sales Tax Act, 1990, resulting in Increase in the rate of sales tax from 10 per cent to 17 per cent.

The chamber said this measure will discourage new investment in industry and upgradation of existing industries and BMR. Industrial machinery falls in the category of capital goods for the purpose of production. It should not be treated under the same criteria as consumer product or raw material, subject to 17 per cent sales tax.

READ MORE: Tax exemption sought for plant, machinery import

The KCCI proposed to restore plant and machinery not manufactured locally in 8th Schedule of Sales Tax Act, 1990, and exempt from 17 per cent sales tax, to encourage expansion and generate employment.

It will help to promote industrialization, GDP growth and employment.

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.

READ MORE: FPCCI demands CNIC condition withdrawal

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.

READ MORE: FBR urged to wave further tax on providing CNIC number

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.

READ MORE: Tax exemption sought for plant, machinery import

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.

READ MORE: Proposed list of higher withholding tax rates for non-filers

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.

KARACHI: The Federal Board of Revenue (FBR) has been urged to wave further tax where CNIC (Computerized National Identity Card) number is provided by unregistered supplier.

Karachi Chamber of Commerce and Industry (KCCI) in its proposals for budget 2022/2023 submitted to the FBR highlighted an issue stating an obvious anomaly is perpetuated by imposing 3 per cent penal tax (further tax) on registered persons on supplies made to unregistered persons.

READ MORE: Tax exemption sought for plant, machinery import

Despite providing CNIC number of unregistered buyers, as required under Section 8 (Sub-Sec.1, Clause M) of Sales Tax Act, 10th Schedule, the registered seller has still to pay 3 per cent further tax.

Moreover, prior to Supplementary Finance Bill 2022, registered seller was not held responsible in case a fake CNIC was provided by buyer. However, after enactment of Supplementary Bill 2022, seller will be held accountable and face consequences in case fake CNIC number is provided by unregistered buyer.

READ MORE: Proposed list of higher withholding tax rates for non-filers

The outcome of the amendment is that it is unjust and irrational to impose 3 per cent further tax on supplies by registered person to unregistered persons, while also it is required to provide CNIC Number of unregistered buyer in Sales Tax Invoice.

The KCCI proposed that CNIC number of unregistered buyers provided by registered seller/supplier be treated at par with STRN.

The 3 per cent further tax on supplies to unregistered buyer should not be charged if CNIC number is provided by registered seller in Sales Tax Return.

READ MORE: PSX demands slashing CGT rates on disposal of shares

In case CNIC number of unregistered buyer of raw materials is not provided, VAT may be charged at 1.7 per cent on sales of raw material.

Giving rationale to the suggestion, the KCCI said it will discourage cash economy and encourage documentation by placing the trust in registered persons.

Placing the responsibility to broaden the tax base squarely on Regional Tax Offices (RTOs) and Large Tax Offices (LTOs) rather than on taxpayers.

Further, it will discourage fake and flying invoices which are issued to avoid 3 per cent further tax.

Besides, it will enhance business transactions through banking channels and promote growth.

READ MORE: FBR suggested reduce corporate tax rate for listed companies