Diesel generators import: massive evasion of duties, taxes unearthed

The Directorate General of Post-Clearance Audit (PCA), Federal Board of Revenue (FBR), has unearthed massive evasion of duties and taxes on import of diesel generators, involving certain importers who violated customs duty, sales tax exemption/zero rating notifications including SRO 575(I)12006, SRO 530(I)/2005 and SRO 549(I)/2008.
Sources told Business Recorder here on Monday that the directorate has detected evasion of sales tax through inadmissible exemption of sales tax on the import of diesel generators falling under HS Code 8502.1110. The importers of the diesel generators have also obtained wrong exemption of withholding tax under the provisions of the Income Tax Ordinance.
In this connection, the DG PCA FBR has submitted a report to the tax authorities. The directorate is also engaged in checking tax profiles of importers of diesel generators to detect similar nature of cases across the country, sources added.
According to the agency''s report, pursuant to a credible information regarding evasion of taxes through inadmissible claim of exemption of sales tax on import of diesel generators falling under HS Code 8502.1110, post-clearance audit of import data of diesel generators was initiated by PCA Directorate, Karachi and the preliminary scrutiny of import data for the period from July 2006 onwards showed that consignments of PCT Heading 8502.1110 (Diesel Generating Sets of an output not exceeding 5 (KVA) were wrongly cleared with sales tax exemption/zero rating under SRO 575(1)12006, SRO 530(1)/2005 and SRO 549(1)/2008 along with concession of withholding tax under Income Tax Ordinance, 2001.
It may be mentioned that under SRO 575(1)/2006 dated June 5, 2006, exemption of whole of sales tax is admissible to the imported goods as are not listed in the locally manufactured items notified through the CGO 11/2007 dated 28.8.2007 issued by the FBR. Diesel generating sets of an output not exceeding 5 KVA falling under PCT Heading 8502.1110 are listed (Serial No 711) in the locally manufactured items notified through the customs general order (CGO) 11/2007 dated 28.8.2007 and as such, the aforesaid goods are not entitled for exemption of customs duty and sales tax under the above mentioned SRO.
Besides, zero rating of sales tax under SRO 530(1)/2005 dated 06.6.2005 is not applicable on import of the said goods under PCT Heading 8502.1110 as the same are not covered in the positive list of the said SRO. Moreover, zero rating of sales tax under Serial No 7 of SRO 549(1)/2008 dated 11.06.2008. is also not available on import of diesel generating sets of PCT 8502.1110 as the said serial relates to raw material, components, sub components and parts of plant and machinery. Total detected revenue loss in such manner is around Rs 30 million, Directorate General of PCA stated. Directorate General of PCA added that the audit observations are being issued to the concerned importers and further progress in this behalf will be intimated to the Board in due course.