The government has reduced withholding tax from 5 percent to 2.5 percent on locally manufactured cars with a view to promote and strengthen local industry. CBR Chairman M Abdullah Yusuf told the media persons on Sunday that the reduced rate of 2.5 percent withholding tax would be applicable from September 1, 2007.
Those who have already booked orders would not have to pay any additional cost. The levy would be applicable from September 1. He said that 5 percent withholding tax was imposed on local purchase of cars in budget 2007-08. Following the budget, the industry apprised the CBR about the problems arising from imposition of this levy. The Board reviewed the decision and brought down this WHT from 5 percent to 2.5 percent ie 50 percent reduction. He said that CBR was likely to generate an additional amount of Rs 8 billion from steel sector during 2007-08.
The sales tax on import of ships for breaking and re-meltable scrap has been zero-rated. However, ship plates and re-rollable scrap obtained from ship breaking would be liable to 15 percent sales tax. Similarly, sales tax has been reduced from 20 to 15 percent on import of ingots, billets, iron and steel scrap and other items of steel industry.
This 15 percent sales tax on ingots and billets would help in documentation of the steel sector at the melters'' stage. It will facilitate trade and overcome the problem of documentation.
The CBR is making efforts to document this sector, and sales tax on finished products would remain 15 percent, he said. He said that sales tax has also been reduced from 20 to 17.5 percent on flat rolled iron and steel products. This has been done after discussion with the downstream industry. As value-addition is not very much in case of these products, there are chances of generating refunds. The end product rate would remain liable to 15 percent.
The CBR chairman said that the Board has levied 2 percent extra sales tax on imports made by commercial importers in addition to the standard chargeable rate of sales tax. Commercial importers wanted to avoid documentation as well as audit. Two percent extra sales tax has been levied on imports made by commercial importers along with the standard sales tax.
The importers paying 2 percent extra sales tax would not be required to pay any further sales tax on subsequent supply of their products.
Commercial importers would continue to enjoy immunity from audit under the new arrangement. He pointed out that certain categories of registered persons had been excluded from the condition of 90 percent input adjustment under section 8B of the Sales Tax Act, 1990.
These sectors are electric energy, oil marketing companies and oil refineries; fertilisers manufacturers; manufacturers consuming raw materials chargeable to sales tax at the rate of 17.5 percent or 20 percent; wholesalers and distributors; wholesalers-cum-retailers and commercial importers. He said that maximum input tax adjustment has been allowed to avoid manipulation of the sales tax system.
About special excise duty, he said that the Board had levied one percent special excise duty (SED) on import and local manufacturing of goods from July 1. The amount of special excise duty would not be part of the value for assessment of customs duty, federal excise duty, sales tax or advance income tax in case of imported or locally manufactured goods. The SED paid at import or local supply stage on industrial inputs will be adjustable against special excise duty chargeable on goods manufactured therefrom at local supply stage.
He said that government departments, autonomous bodies and public sector organisations have been declared as withholding agents. The suppliers to the government departments were deliberately not depositing the collected amount in the national exchequer. Now, the government departments would deduct 3 percent out of total 15 percent payable sales tax.
This 3 percent deduction by the government departments would be treated as advance sales tax. Suppliers would have incentive to file the sales tax return. The supplier can adjust total input tax against output tax taking due credit of the sales tax deducted by the withholding agent.
Highlighting the ongoing reform process, he said that the work on the Model Customs Collectortes has been actively started and all MCCs would simultaneously rollout within one-and-a-half years.
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