The federal government, abiding by its commitment, has restored zero rating facility on raw materials for stationery, dairy products and bicycles, resulting in a waiver of 17% sales tax on these items.
According to a notification issued on Thursday by Federal Board of Revenue (FBR), the import and local supply of raw materials will be charged at zero rates, subject to a number of conditions.
On June 12, the FBR had taken away the zero-rating facility from the writing instruments manufacturing industry, bicycles and dairy products, while bringing these sectors to ‘exempted sectors’.
However, while wrapping up his budget speech, Finance Minister Ishaq Dar had announced the restoration of the facility for these sectors.
Despite the announcement, FBR has issued relevant notification to this effect after a lapse of three weeks.
According to the notification colours in sets, writing, drawing and marking inks, erasers, exercise books, sharpeners, geometry boxes, pens, ball pens, markers, pencils, milk including flavoured milk, yogurt, cheese, butter, desi ghee, cream, fat filled milk and bicycles will be entitled to avail zero rating facility.
The zero rating will be available subject to determination of input and output ratios by the Input-Output Co-efficient Organisation, if not already determined under an earlier concessionary notification issued for such goods.
Further, for import and local procurement of raw materials and packing materials, the manufacturer of the goods will submit a complete list of his annual requirement of the inputs he intends to import or purchase locally to the Commissioner Inland Revenue.
The Commissioner will then approve the declaration of input-output ratio of the manufacturer, without physical verification, in case the declared input-output ratio and input requirement is in accordance with the prevailing industry average or the inputs consumption pattern of the applicant manufacturer or as already determined by IOCO.
In case the Commissioner is not satisfied with the declared input-output ratios of the goods, he may, after allowing a six months provisional quantity, make a reference to the IOCO for final determination thereof.
On receipt of report from IOCO the Commissioner will then determine the final annual quantitative entitlement of inputs and grant final approval for zero-rated purchases or imports. In case of non-receipt of report from IOCO within four months of the application made by the manufacturer, the Commissioner will provisionally allow another six months quantity to the applicant manufacturer.
The manufacturers will have to consume the raw material from within a year of purchase. After consuming the raw materials the manufacturers will communicate to the concerned Commissioner of Inland Revenue in writing about the consumption within three months.
It further added that in case the input goods are not consumed within the period allowed in the approval, the manufacturer will pay the amount of sales tax involved or obtain extension from the Commissioner of Inland Revenue under intimation to the Collector of Customs.
In case it is found that the inputs have not been properly accounted for or consumed in the manufacture and supply of goods as prescribed, the Commissioner may initiate proceedings for recovery of the sales tax involved on the unaccounted inputs besides penal action under the relevant provisions of the Sales Tax Act, 1990.Further giving discretionary powers to the tax officials, the notification stated that under circumstances of exceptional nature and for reasons to be recorded in writing, the concerned Commissioner may relax any of the conditions.
The FBR has garnered criticism from the industry for its decision to give such vast discretionary powers to the Commissioners, which they say will increase interaction with the tax machinery and opening another avenue for corruption.
Published in The Express Tribune, July 19th, 2013.