Fiscal relief package for KPK, tribal areas: FBR decides to withdraw FED, ST exemptions

The Federal Board of Revenue (FBR) has decided to withdraw all notifications granting exemptions of sales tax and federal excise duty (FED) to Khyber-Pakhtunkhwa and Federally Administered Tribal Areas (Fata) and Provincially Administered Tribal Areas (Pata) under the Prime Minister''s fiscal relief package.
Sources said on Wednesday that the FBR had decided to immediately move a summary to Minister of Finance Dr Abdul Hafiz Sheikh, calling for withdrawal of all relevant sales tax/FED notifications. The notification of Prime Minister''s Fiscal Relief package to Rehabilitate Economic Life in Khyber-Pakhtunkhwa, Fata and Pata in respect of direct taxes expired on June 30 this year. In this regard, it was decided that a notification rescinding Sales Tax & FED notifications shall be issued with the approval of the Finance Ministry. According to sources, the partial withdrawal of the Prime Minister''s fiscal relief package for Khyber-Pakhtunkhwa, Fata/Pata has created confusion among investors/traders as notifications granting exemptions of sales tax and federal excise duty (FED) are still operative. The income tax exemptions granted to the business community of the said areas have been taken away from new fiscal (2012-13).
On the other hand, SROs 160 to 165(I)/2010, dealing with the sales tax and the FED exemption to Khyber-Pakhtunkhwa and tribal areas, have not been rescinded. This shows that direct taxes exemptions for Khyber-Pakhtunkhwa and tribal areas have been withdrawn under Clause 126(F) of the Second Schedule of the Income Tax Ordinance 2001. Contrary to this, all sales tax and federal excise duty notifications part of the fiscal relief package are still enforced despite the withdrawal of income tax concessions.
Sources explained that SROs 160 to 165(I)/2010 are not time-bound exemptions, whereas concessions under Clause 126(F) of the Second Schedule of the Income Tax Ordinance 2001 lasted till June 30 this year. Thus, this exemption has expired and would not be further extended. However, SROs 160 to 165(I)/2010 have to be rescinded provided the government desires to do so.
The FBR notified fiscal concessions through SROs 160 to 165(I)/2010. These SROs are not time-bound and legally exemptions of sales tax and federal excise duty would continue in the KPK and tribal areas unless or until these notifications have been rescinded. Under these notifications, the sales tax exemption was announced on supply of electric power to manufacturers; 50% reduction in the rate of sales tax on domestic supplies of goods; exemption of excise duty on goods manufactured in Fata/Pata and selected 13 districts of Khyber-Pakhtunkhwa. Therefore, the distortion should be removed by withdrawing all notifications pertaining to sales tax and FED.