Expanding scope of duty drawback regime: Siemens seeks inclusion of transformers

A leading engineering company has proposed the Federal Board of Revenue (FBR) to expand the scope of duty drawback regime on export of transformers and withdraw exemption of duties and taxes granted on import of machinery/equipment under SRO.575(I)/2006 for protection of the local industry. These suggestions were part of budget proposals submitted by M/s Siemens Pakistan Engineering Co Ltd to the FBR for 2013-14.
The taxation proposals for engineering industry were drafted by Muhammad Rashid, Head of Taxation, and Arshad Iqbal Quershi, Head of the company's Indirect taxes. The FBR received the budget proposals for consideration, sources added. According to the budget proposals, machinery and equipment such as transformers, cables, switchboards, boilers, energy meters, DG sets etc imported for projects have become cheaper as compared to local manufactured ones, leaving the local industry of these capital goods as uncompetitive against the imported goods.
Under SRO575(1)/2006 dated June 5, 2006, the condition of restriction of concessionary duty to locally manufactured items has been withdrawn by making an amendment in the relevant section, through SRO.554(1)/2008 dated June 12, 2008. As per SRO, only those imported goods are exempt for duty and taxes which are not manufactured locally. However, this condition of (of locally manufactured) is not applicable in respect of S.Nos. 1, 2, 6, 15, 20, 28, 29 and 31 of the Table of SRO and for such goods as imported for setting up new industrial where the total C&F value of such import is US $50million or above.
Previously, only such machinery, equipment and capital goods were allowed to be imported at concessionary rate of duty which was not manufactured locally. Amendment in the above mentioned SRO has been made and machinery, equipment and capital goods imported as plant for setting up of new Industrial Unit have been de-linked from the local manufacturing status condition. The company has proposed that the revised condition (i) of SRO.575(1)/2006 introduced through SRO.554(1)12008 clause (b) should be withdrawn and the original condition (i) of the above mentioned SRO should be restored. The Sr. No 11, 12, 13 & 14 of customs SRO575 should be included in the list of Exemptions in Sales Tax SRO 551(1)/2008 so that the supply of the above item should also be exempted at supply stage. This will reduce the cost of doing business as well as boost the investment in the country in the field of power transmission & grid stations which has now become essential to overcome the shortage of Electricity in the country.
M/s Siemens Pakistan further proposed that the custom SRO575(1)/2006 deals with custom duty as well as for exemption of sales tax at import stage. The company proposed that the sales tax exemption may also be allowed at supply stage as well. Previously Sr. No 68 of the sixth schedule allowed it but FBR withdrew the said entry from the sixth schedule in last budget. Therefore, the same status may be restored as earlier or amend the SRO 575 for applicability for its supply side as well.
This relaxation is seriously hurting the local industry as due to this no orders are being placed on local industry in respect of various Projects since import of the required items can be made at concessionary rates. The local industry is already hardship due to high cost of production, high infrastructure cost, tax structure, smuggling, under invoicing etc. By withdrawal of concessions, besides saving the hard earned foreign currency, protection to local industry would also be provided and be in line with the national policy to provide protection to local industry in order to ensure employment of thousands of workers, sources said.
The SRO 211(I)/2008 allows duty drawback on export of various manufactured goods. In schedule VII of the said SRO, transformers of all ratings are entitled for duty drawback however, only two H.S.Codes 8504.3300 and 8504.3400 are mentioned therein. The two H.S. Codes do not cover transformers of all ratings. Therefore H.S. Codes of remaining transformer needs to be included therein. Customs are not allowing duty drawback on export of other transformers, irrespective of the fact that transformers of all ratings are allowed for Duty Drawback. It is proposed that H.S. Codes 8504.2100, 8504.2200, 8504.2300, 8504.3200 be included in addition to 8504.3300 and 8504.3400 in column 3 of Schedule-VII of SRO so as to cover transformers of all ratings as specified in SRO.
M/s Siemens Pakistan has proposed that in federal budget 2012-13, the Board has omitted Sr. No 4 which allows zero-rating for supplies against International Tender and shifted this supply in Sixth Schedule of Sales Tax Act, 1990 which relates to exemptions. As per Sales Tax Act, 1990 input Sales Tax can only be adjustable from taxable supplies and not against exempted. The International Tenders brings foreign exchange in the country and thus the Board considered this supply as export and thus allows zero-rating. Foreign loan giving agencies are also linked with these orders. This change in sales tax causes hardship to local manufacturers who have international tenders in hand and supply them exempted which causes cost impact of Input sales tax and causes losses due to this change.
The company has also proposed that SRO98(I)/2013 has enlarge the withholding Sales Tax Agents by removing the category of LTU Registered Persons by adding Companies which enlarge the huge scope of withholding agents and also change the withholding rates on goods and services from 1 percent of supply value to 1/5 or 20 percent of sales tax amount. This change causes financial burden to the tax payers by paying advance along with the return and deduct when actual payment made to supplier and issue withholding certificate to supplier so that he may adjust the same from their return. This cause's additional work burden to the registered person which is at the moment is working on cost reduction for their survival.
The aim and objective of the board at the time of issuance of withholding rules is not revenue generation. This is for implementation and improvement of documentation of economy. It has been proposed that FBR may extends withholding agents definition by adding companies but the rates of withholding should remain same so that liquidity problems to registered persons could not be effected. M/s Siemens Pakistan has also suggested the list of exemptions as given in withholding rules may be defined through Pakistan Customs Tariff (PCT) so that at the time of audit no dispute arises.