Raw materials' import by manufacturers: FBR to review policy of issuing exemption certificates

The Federal Board of Revenue (FBR) will review the policy of issuing exemption certificates on import of raw materials by the industrial importers-cum-manufacturers to check misuse of the facility under Section 148 of the Income Tax Ordinance 2001.
Sources told Business Recorder here on Monday that the issue of misuse of the exemption certificate's facility was pointed out by Chief Commissioner Regional Tax Office (RTO) Peshawar during the last Chief Commissioners' conference held at the FBR House. He explained during the conference that audit of the importers-cum-manufacturers availing exemption facility should be conducted and in case of detection of any misuse of the facility it should be promptly checked.
The exemption has been available to the importers-cum-manufacturers on the imports of raw materials and inputs depending on the installed capacity of their units. Based on the installed capacity of the unit, the quantity of the raw materials and inputs has been allowed to ensure that the imported items have been duly consumed in the manufactured goods. In certain cases, raw materials were imported by the importers-cum-manufacturers more than their requirements or the capacity of their units.
"There is an element of misuse as the raw material has been imported in large quantity as compared to the actual capacity of the manufacturing unit, the conference was told. It was apprehended that some of the tax-free raw material was sold in the local market. The sources said that there was a need to revisit the policy to curb the misuse of the exemption facility as per section 148 of the Income Tax Ordinance 2001. They said that the exemption certificates were issued to the importers-cum-manufacturers for consumption of the raw materials by their own units.
They added that the installed capacity of any unit was one of the major benchmarks for issuance of tax exemption at the import stage. Under the relevant law, such importers can claim exemption on the argument that the imported inputs would be duly consumed by the units. There is a possibility that certain quantity of the exempted raw materials could be sold in the local market.
In order to check the possible misuse of the facility, the Board intends to review the whole policy of the exemption certificates. In this connection, the FBR has issued instructions to the Chief Commissioner RTO Peshawar to submit a report on the exemptions granted to the KPK. According to the FBR's instructions, the Chief Commissioner RTO Peshawar would submit the case study/analysis of special initiatives/exemptions of KPK to the Board by December 15, 2011.