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Tag: sales tax zero rating

  • FBR sets up cell for registration of manufacturers for concessionary power, gas tariff

    FBR sets up cell for registration of manufacturers for concessionary power, gas tariff

    ISLAMABAD: Federal Board of Revenue (FBR) on Thursday established a cell for registration of manufacturers in export-oriented sector to allow concessionary tariff on supply of electricity and gas.

    The FBR issued an office order to set up Export-oriented Sector Registration Cell (ESRC) for manufacturers of export-oriented sectors (erstwhile zero-rated sector) to process requests for concessionary tariff rates on supply of electricity and gas.

    The FBR deputed officers to the cell, who are included: Khalid Mehmood, Second Secretary (ST-L&P), Imran Ullah Khan, Senior Auditor (ST-L&P) and Majid Hussain Abbasi, Inspector (ST-L&P).

    The functions of the ESRC are to:

    Examine the particulars and recommendations of the respective associations and counter-verify particulars of the taxpayer including declarations in the registration profile etc. as required, and forward the case to the ministry of commerce for further necessary action.

    Liaise with Inland Revenue field formations for ground-check, report and recommendations, in case any discrepancies in the verification report and data available with the FBR are spotted.

    Earlier in a notification issued on December 30, 2020, the FBR said that the economic coordination committee of the cabinet had approved the reduced rate to manufacturers on supply of electricity and gas in a meeting held on December 12, 2020. The ECC also directed the FBR, ministry of commerce and other stakeholders to devise a standard operating procedure (SOP) for enrollment of registered persons under the export-oriented sectors (erstwhile zero-rated sectors) to quality concessionary regime of electricity, RLNG and gas tariff.

    Accordingly, a meeting was held in FBR on December 22, 2020 and as a result of thorough deliberations amongst all stakeholders the requisite SOP has been agreed upon and being rolled onto.

    The FBR said the following SOP adopted for enrollment of manufacturers for grant of reduced tariff rate:

    (i) For new registration of manufacturers for concessionary tariff rates, applicants may apply respective representative association.

    (ii) The Association concerned, after verifying the particulars on the prescribed format, may forward the application along with its element recommendations, duly signed by its chairman/president, to the export oriented sector registration cell (ESRC) of the FBR.

    (iii) The ESRC shall examine the particulars and recommendations of the respective associations and counter-verify particulars of the taxpayer including declarations in the registration profile etc. as required, and forward the case to the ministry of commerce for allowing concessionary tariff through respective Distribution Companies (DISCOs)/Gas companies.

    (iv) In case the ESRC spots any discrepancies in the verification report and data available with the FBR, the matter will be referred to Inland Revenue field formations for ground-check, report and recommendations.

    (v) The newly enrolled taxpayers shall be entitled to avail concessionary tariff prospectively.

    (vi) The DISCOs/gas companies shall ensure that the taxpayers are active on FBR’s (Sales Tax) Active Taxpayers List (ATL) as shared with DISCOs/gas companies each month before generating the monthly utility bills. In case the taxpayer is found non-active on the ATL, standard utility tariff shall apply on supply of utilities for the relevant period.

    (vii) Any taxpayer aspiring to avail concessionary utility rates and who is not registered with the respective sector association, may approach the Inland Revenue field formation concerned for verification of its business particulars and onward submission of report on the prescribed format to the RSRC within 15 days of the submission of the application.

    The procedure for the registration of new entrants in export oriented sectors shall become applicable with effect from January 01, 2021.

    Following is the list of export oriented sectors associations:

    01. All Pakistan Textile Mills Association (APTMA)

    02. Pakistan Readymade Garments Manufacturers & Exporters Association (PRGMEA)

    03. Pakistan Hosiery Manufacturers Association (PHMA)

    04. Pakistan Textile Exporters Association (PTEA)

    05. Pakistan Leather Garments Manufacturers & Exporters Association (PLGMEA)

    06. Pakistan Sports Goods Manufacturers & Exporters Association

    07. Surgical Instruments Manufacturing Association of Pakistan

    08. Pakistan Denim Manufacturers and Exporters Association

    09. All Pakistan Textile Processing Mills Association (APTPMA)

  • PRGMEA supports proposal for revival of sales tax zero-rate regime

    PRGMEA supports proposal for revival of sales tax zero-rate regime

    KARACHI: Exporters and manufacturers of readymade garments on Thursday supported the proposals of revival of zero-rate sales tax regime for entire textile chain.

    Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA) in a statement endorsed the demand of PM Advisor on Commerce Abdul Razak Dawood to seek zero-rating regime for whole textile chain in the Textile and Apparel Policy 2020-25, stating the apparel sector is eagerly waiting for the approval of it from the ECC to make future marketing plan in the light of new policy.

    PRGMEA central chairman Sohail A. Sheikh and chief coordinator Ijaz Khokhar, in a joint statement issued here today, observed that restoration of zero-rating status of the textile sector is vital to maintain the momentum of present enhanced exports, as currently the sector is working at full capacity to meet the high demand of export orders.

    “It is absolutely essential to sustain this momentum, as economic activities are largely restored to pre-Covid levels in the first quarter of current fiscal year 2020-21, PRGMEA central chairman added.

    He said that the uptrend indicated a promising growth ahead in all major sectors especially the value-added apparel industry, but the risk of record high yarn prices amidst its severe shortage has continuously been posing a major threat to exports growth.

    Apart from announcing five-year textile policy, the government will have to introduce some soft package for short-term period for the apparel industry to sustain the present growth as yarn prices has increased by 30-40 percent while availability is also very critical, he observed.

    Sohail A. Sheikh said that the government can support the industry by restoring the zero rating of sales tax regime besides allowing duty-free cotton yarn, as the industry is hitting hard owing to shortage of its major raw material. Moreover, existing available stocks of cotton yarn are of the poor quality to help any sort of apparels manufacturing for export purposes.

    Ijaz Khokhar said the situation demands that the government should immediately abolish customs duty and all types of taxes on import of cotton yarn and exporters should be given full liberty to import yarn from any country till the scarcity of cotton yarn is ended, as removal of just 5 percent regulatory duty could not have a significant effect in the local market.

    He added that the value-added apparel sector has been affected badly due to delay in the final announcement of the new textile policy by Economic Coordination Committee of the cabinet, as the PM has already given approval in this regard. He was of the view that a delay in textile policy may result in delay or even backing out of investors from possible investments in the industry. Currently, we are in short production capacity and several exporters are refusing export orders because there is not enough capacity available in the country. A clear long term policy will give investors a clear vision that the government of Pakistan is ready to support the apparel sector of Pakistan on long-term basis.

    According to him, the new textile policy carries the potential of taking the textile sector out of a crisis like situation. He hailed the PM Advisor for making efforts for incorporating several suggestions of the PRGMEA.

    Sohail A. Sheikh also called for a Soft Temporary Import for Re-Export Policy especially designed for SME’s, which are 90 percent of our export industry. This is very important to manage our global supply chain. PRGMEA has already submitted a comparative study of existing SROs and new proposed SRO, which will help us cater to the new Fast Fashion & On-line Business Model.

    There is a huge demand of Certified Organic Cotton by the buyers. We the apparel sector strongly recommend that the import of Organic Yarn should be exempted from custom duty and all other taxes, till Pakistan produces its own certified organic cotton.

  • APTMA demands sales tax zero rating revival

    APTMA demands sales tax zero rating revival

    KARACHI: All Pakistan Textile Mills Association (APTMA) on Wednesday demanded restoration of sales tax zero rating as authorities failed to fulfill commitments of repayment of refund under new online refund system.

    In a letter sent to Abdul Razzaq Dawood, Advisor for Commerce, Textile, Industry & Production and Investment, the association informed that since domestic sales constituted 50 percent of textile output, zero rating led to sales tax evasion to the tune of $12 billion sales.

    At the time, APTMA had proved that this was a false assertion and this fact has now been admitted by FBR. This FBR has now stated on record that the domestic sales of the textile sector only account for 20 percent of the overall value of textile production of the country.

    The APTMA said that the misplaced withdrawal of zero rating, the entire textile industry has suffered immensely and the levy of sales tax in its present form and design has led to almost Rs20 billion (5-6 months total impact Rs100 billion) liquidity moving from the industry to FBR.

    It is further informed that prior to July 2019, the industry had become competitive and profitable and if the zero rating scheme would have continued these funds would have been spent on new projects, upgradation and expansion of the industrial base and resulted in increased exports for the country. The economic cost of the withdrawal of zero rating has been colossal.

    The amount of sales tax being paid by the industry is even more that the annual profits of most companies. Many companies have had to borrow from banks to finance this unjustified levy resulting in an increase in their cost of production.

    “Thus, negating the government claims to move on a policy of reducing the cost of doing business in Pakistan.”

    At the time of withdrawal of SRO 1125, the government had assured the industry that it would review the situation in 6-8 months’ time. More than nine months have now passed, and it is evident that the Sales Tax system is not contributing significantly to the FBR kitty.

    On the other hand, the entire government, FBR and the entire industry is constantly holding meetings and wasting precious time and money on resolving the issue of refunds.

    Sales Tax refunds are not forthcoming as per the promised and unequivocally stated claims that payments would be made would be paid within 72 hours of filing of H forms.

    This has not happened and the sales tax claims even after filing of H forms have remained unpaid for months on end.

    In fact, the flow of quantum of refunds was very tightly regulated by the Ministry of Finance/FBR and processing of payments limited to the quantum/value predetermined by the Ministry of Finance.

    The Sales Tax returns/H forms were routinely deferred or rejected by FBR on artificial limits established by them which had no basis in reality of the industry.

    In other words, nothing had changed from previous years in terms of refund processing.

    The situation post-Covid19 has changed drastically for the industry, as export orders have been cancelled, payments due against LCs delayed, and fresh orders not forthcoming.

    This is because of a complete collapse of markets and demand for textiles in Europe and USA. Circumstances are not expected to return to normalcy for quite some time.

    It is not possible to expect the value chain to keep on paying Sales Tax with little chance of obtaining their refunds in a timely and agreed manner from FBR.

    This delay results in affecting the entire supply chain as the exporters delay payments to their suppliers who in turn are forced to delay down the line.

    This has resulted in severe cash flow problems in part owing to the banks reluctance to finance these payments.

    Under these circumstances, the association demanded the immediate restoration of SRO 1125 i.e zero rating for the textile supply chain. “Should government still wish to collect sales tax on domestic sales, from a market that is already in dire straits, then it should collect the Sales Tax at the Point of Sale.”

    In the foreseeable future the continuation of the Sales Tax regime applicable to an industry with 80 percent exports is counterproductive and will make recovery of exports to any significant level post-COVID very difficult and even make it impossible.

  • FBR outlines revised regime of zero-rate sales tax

    FBR outlines revised regime of zero-rate sales tax

    KARACHI: Federal Board of Revenue (FBR) has outlined the revised regime of zero rating of sales tax on supply of various goods.

    The FBR issued Sales Tax Act, 1990 updated till June 30, 2019 amended through Finance Act, 2019.

    Section 4 of the Act explained the zero-rating of sales tax on supply of various goods.

    Section 4: Zero rating:

    Notwithstanding the provisions of section 3 except those of sub-section (1A), the following goods shall be charged to tax at the rate of zero per cent:–

    (a) goods exported, or the goods specified in the *Fifth Schedule;

    (b) supply of stores and provisions for consumption aboard a conveyance proceeding to a destination outside Pakistan as specified in section 24 of the Customs Act, 1969 (IV of 1969);

    (c) such other goods, as the Federal Government may specify by notification in the official Gazette, whenever circumstances exist to take immediate action for the purposes of national security, natural disaster, national food security in emergency situations and implementation of bilateral and multilateral agreements:”

    *FIFTH SCHEDULE

    01. (i) Supply, repair or maintenance of any ship which is neither;

    (a) a ship of gross tonnage of less than 15 LDT; nor (b) a ship designed or adapted for use for recreation or pleasure.

    (ii) Supply, repair or maintenance of any aircraft which is neither;

    (a) an aircraft of weight-less than 8000 kilograms; nor

    (b) an aircraft designed or adapted for use for recreation or pleasure.

    (iii) Supply of spare parts and equipment for ships and aircraft falling under (i) and (ii) above.

    (iv) Supply of equipment and machinery for pilot age, salvage or towage services.

    (v) Supply of equipment and machinery for air navigation services.

    (vi) Supply of equipment and machinery for other services provided for the handling of ships or aircraft in a port or Customs Airport.

    02. Supply to diplomats, diplomatic missions, privileged persons and privileged organizations which are covered under various Acts, Orders, Rules, Regulations and Agreements passed by the Parliament or issued or agreed by the Government of Pakistan.

    3. Supplies to duty free shops, provided that in case of clearance from duty free shops against various baggage rules issued under the Customs Act, 1969, (IV of 1969), the supplies from duty free shops shall be treated as import for the purpose of levy of sales tax.

    5. Supplies of raw materials 3[, components and goods for further] manufacture of goods in the Export Processing Zones.

    6. Supplies of such locally manufactured plant and machinery to petroleum and gas sector Exploration and Production companies, their contractors and sub-contractors as may be specified by the Federal Government, by notification in the official Gazette, subject to such conditions and restrictions as may be specified in such notification.

    6A. Supplies of locally manufactured plant and machinery of the following specifications, to manufacturers in the Export Processing Zone, subject to the conditions, restrictions and procedure given below, namely:-

    (i) Plant and machinery, operated by power of any description, as is used for the manufacture or production of goods by that manufacturer;

    (ii) Apparatus, appliances and equipments specifically meant or adapted for use in conjunction with the machinery specified in clause (i);

    (iii) Mechanical and electrical control and transmission gear, meant or adapted for use in conjunction with machinery specified in clause (i); and

    (iv) Parts of machinery as specified in clauses (i), (ii) and (iii), identifiable for use in or with such machinery.

    Conditions, restrictions and procedures:-

    (a) the supplier of the machinery is registered under the Act;

    (b) proper bill of export is filed showing registration number;

    (c) the purchaser of the machinery is an established manufacturer located in the Export Processing Zone and holds a certificate from the Export Processing Zone Authority to that effect;

    (d) the purchaser submits an indemnity bond in proper form to the satisfaction of the concerned Commissioner Inland Revenue that the machinery shall, without prior permission from the said Commissioner, not be sold, transferred or otherwise moved out of the Export Processing Zone before a period of five years from the date of entry into the Zone;

    (e) if the machinery is brought to tariff area of Pakistan, sales tax shall be charged on the value assessed on the bill of entry; and

    (f) breach of any of the conditions specified herein shall attract legal action under the relevant provisions of the Act, besides recovery of the amount of sales tax along with default surcharge and penalties involved.

    7. Supplies made to exporters under the Duty and Tax Remission Rules, 2001 subject to the observance of procedures, restrictions and conditions prescribed therein.

    8. Imports or supplies made to Gawadar Special Economic Zone, excluding vehicles falling under heading 87.02 of the Pakistan Customs Tariff, subject to such conditions, limitations and restrictions as the 2[Board] may impose.

    9. Goods exempted under section 13, if exported by a manufacturer.

    10. Petroleum Crude Oil (PCT heading 2709.0000).

    11. Raw materials, components, sub-components and parts, if imported or purchased locally for use in the manufacturing of such plants and machinery as is chargeable to sales tax at the rate of zero percent, subject to the condition that the importer or purchaser of such goods holds a valid sales tax registration showing his registration category as “manufacturer”; and in case of import, all the conditions, restrictions, limitations and procedures as are imposed by notification under section 19 of the Customs Act,1969(IV of 1969), shall apply.

    12. The following goods and the raw materials, packing materials, sub-components, components, sub-assemblies and assemblies imported or purchased locally for the manufacture of the said goods, subject to the conditions, limitations and restrictions as prescribed by the Board:–

    (xvii) Preparations suitable for infants, put up for retail sale] (PCT Heading 1901.1000)

    (xix) Bicycles (PCT heading 87.12).

    (xx) Colors in sets (PCT heading 3213.1000).

    (xxi) Writing, drawing and marking inks (PCT heading. 3215.9010 and 3215.9090)

    (xxii) Erasers (PCT heading 4016.9210 and 4016.9290)

    (xxiii) Exercise books (PCT heading 4820.2000)

    (xxiv) Pencil sharpeners (PCT heading 8214.1000)

    (xxv) Geometry boxes (PCT heading 9017.2000)

    (xxvi) Pens, ball pens, markers and porous tipped pens (PCT heading 96.08)

    (xxvii) Pencils including color pencils (PCT heading 96.09)”.

  • Budget 2019/2020: sales tax zero-rating abolished

    Budget 2019/2020: sales tax zero-rating abolished

    ISLAMABAD: The government has abolished sales tax zero-rated by rescinding SRO 1125(I)/2011 for export sectors. However, new mechanism of refund has been introduced which would be paid at the time of realization of exports.

    SRO 1125(I)/2011 provides for zero-rate of sales tax on inputs and products of five export-oriented sectors i.e. textile, leather, carpets, sports goods and surgical goods.

    The objective was to resolve delay in refund payments. However, zero7 rating has created loophole and the benefit is being availed by unintended beneficiaries / non-exporters. Reduced rates for finished goods is also harming revenues.

    Huge misuse of SRO on import of fabric and processed fabrics has been reported. To streamline and prevent revenue leakage SRO 1125 is being rescinded.

    SRO 1125 be rescinded, thus restoring standard rate of 17 percent on items covered under SRO.

    The rate of sales tax on local supplies of finished articles of textile and leather and finished fabric may be raised from current 6 percent for integrated businesses, and 9 percent for others, to 15 percent and 17 percent, respectively.

    Zero-rating of utilities (gas, electricity and fuels) allowed to these export oriented sectors through various sales tax general orders be withdrawn.

    Refund of sales tax to these sectors be automated, thus ensuring that the sales tax paid on inputs is immediately refunded. Refund Payment Orders (RPOs) shall be immediately sent to SBP for payment as soon as these are generated.

    Ginned cotton which is presently exempt is proposed to be subjected to reduced rate of 10 percent

    In addition to above, it is also proposed to rescind notification No. SRO. 769 (I)/2009, dated 4th September, 2009, which grants zero-rating on import and supply of polyethylene and polypropylene for manufacture of mono filament yarn and net cloth, being similar in nature to SRO 1125, and that granting zero-rating to local supplies is to be discouraged.

  • FBR suspends zero rating on electricity to textile unit

    FBR suspends zero rating on electricity to textile unit

    ISLAMABAD: Federal Board of Revenue (FBR) has suspended sales tax zero rating allowed to a textile unit on consumption of electricity.

    The FBR issued Sales Tax General Order (STGO) No. 51 of 2019 and suspended sales tax zero rating under SRO 1125(I)/2011 dated December 31, 2011 of Habib Fabric Private Limited.

    The zero rating of the taxpayers has been suspended on the recommendation of Regional Tax Office (RTO) Faisalabad.

    The FBR directed Chief Commissioner RTO Faisalabad to coordinate with power supply company to implement the normal tax rate. The RTO has also been asked to submit report in respect of action taken/recovery made for misuse of the facility.

    The FBR also asked Faisalabad Electric Supply Company (FESCO) to start charging sales tax on the supply of electricity in respect of the said consumer with immediate effect (April 10, 2019).

  • Sales Tax Act 1990: zero rating on export, supply of goods

    Sales Tax Act 1990: zero rating on export, supply of goods

    KARACHI: The sales tax laws have allowed zero rating of sales tax on exports or supply of goods.

    According to updated Sales Tax Act, 1990 issued by Federal Board of Revenue (FBR), the Section 4 of the Act explained the zero rating.

    Section 4: Zero rating

    Notwithstanding the provisions of section 3 except those of sub-section (1A), the following goods shall be charged to tax at the rate of zero per cent:

    (a) goods exported, or the goods specified in the Fifth Schedule;

    (b) supply of stores and provisions for consumption aboard a conveyance proceeding to a destination outside Pakistan as specified in section 24 of the Customs Act, 1969 (IV of 1969);

    (c) such other goods as the Federal Government may, by notification in the Gazette, specify:

    Provided that nothing in this section shall apply in respect of a supply of goods which –

    (i) are exported, but have been or are intended to be re-imported into Pakistan; or

    (ii) have been entered for export under Section 131 of the Customs Act, 1969 (IV of 1969), but are not exported; or

    (iii) have been exported to a country specified by the Federal Government, by Notification in the official Gazette:

    Provided further that the Federal Government may by a notification in the official Gazette, restrict the amount of credit for input tax actually paid and claimed by a person making a zero-rated supply of goods otherwise chargeable to sales tax.

    (d) such other goods as may be specified by the Federal Board of Revenue through a general order as are supplied to a registered person or class of registered persons engaged in the manufacture and supply of goods supplied at reduced rate of sales tax.

  • FBR discontinues zero rating facility to two textile units

    FBR discontinues zero rating facility to two textile units

    ISLAMABAD: Federal Board of Revenue (FBR) has withdrawn sales tax zero rating to two textile units in Karachi for misusing facility on consumption of gas and electricity.

    According to Sales Tax General Order (STGO) issued on Wednesday, the FBR withdrew the facility of zero rating that was granted on consumption of electricity and gas to companies including A R Hosiery Works and International Chrome Tannery.

    The FBR said that the zero-rated facility was withdrawn on the recommendation of Regional Tax Office (RTO)-III Karachi.

    The FBR directed the Chief Commissioner Inland Revenue of RTO-III Karachi to communicate with concerned authorities for charging the normal sales tax rates from those textile units.

    The FBR further directed the chief commissioner to submit report in case of misuse of the facility.