Sixteen sugar mills across the country have availed illegal zero-rating facility and rebate on local supply of sugar under S.R.O. 77(I)/2013 by showing fake exports to Afghanistan, causing revenue loss to the tune of millions. Sources told Business Recorder here on Monday that the Directorate General of Internal Audit (Inland Revenue) Federal Board of Revenue (FBR) has detected the cases of fake exports and requested the FBR to grant approval for audit of these sugar mills under Sales Tax Act, 1990 and Federal Excise Act, 2005.
The said Directorate has informed the FBR that credible information has been received through an informer regarding misuse of SRO.77(1)/2013 by the sugar mills falling under the jurisdictions of different Large Taxpayer Units (LTUs)/Regional Tax Offices (RTOs). These sugar mills have availed concessions of duty under the above referred SRO without having necessary export documents ie goods declarations (GDs) and 'Gumries' required for confirmation of delivery of goods to Afghanistan, which creates strong suspicion about the entire exports made by 16 sugar mills.
Preliminary inquiry in the matter revealed that 16 sugar mills have claimed illegal export against fake documents ie GDs, & 'Gumric' and availed unlawful zero ratting facility as well as rebate on local supply under S.R.O. 77(1)/2013 dated 07/02/2013 and caused loss to the Government exchequer of millions of rupees. It has also been learnt that criminal proceedings on fake exports are under process against some sugar mills by Collectorate of Customs, Peshawar, Directorate General of Internal Audit said.
Directorate General of Internal Audit has requested FBR to grant permission to probe in the matter through audit under section 25 and 38 of the Sales Tax Act, 1990 and section 46 of the Federal Excise Act, 2005 may kindly be granted to this directorate to safeguard the government exchequer from revenue loss.
In January 2014, the FBR tried to confirm from Commissioners of Inland Revenue concerned whether or not sugar manufacturers are complying with provisions of SRO.77(I)/2013 by presenting proof of sugar exports to avail reduced rate of 0.5 percent duty on local sales equivalent to assigned export quota.
In the past, the government had notified tax incentive on the export of sugar by drastically reducing Federal Excise Duty (FED) from 8 percent to 0.5 percent on local sale of sugar equivalent to additional quantity (500,000 tons) actually exported by the sugar mills as per assigned export quota. The FBR had issued SRO.1072(I)/2013 to this effect.
Earlier, under SRO.77(I)/2013, 0.5 percent rate of duty was also applicable to the quantity of local supply of sugar equivalent to the quantity actually exported by the sugar manufacturer, in accordance with the export quota allotted in pursuance of the decision of the ECC in its meeting held on January 10, 2013.
One of the key condition under SRO.77(I)/2013 was that the sugar manufacturer will present the proof of such export to the Commissioner of Inland Revenue concerned along with the return for the tax period following the tax period in which such export took place. This was subject to the condition that the quantity exported does not exceed the quota allotted in pursuance of the aforesaid decision of the ECC.
In line with the conditions of SRO.77(I)/2013, the FBR tried to verify from the Commissioners of Inland Revenue concerned that sugar manufacturers are fulfilling the laid down condition of the said notification by submitting proof of sugar export to avail reduced rate of 0.5 percent duty on its local sale equivalent to assigned export quota.
Under RO.77(I)/2013, the rate of the FED on white crystalline sugar (Pakistan Customs Tariff headings 1701.9910 and 1701.9920) was 0.5 percent. This was subject to the condition that the 0.5 percent rate of duty shall only be applicable to the quantity of local supply of sugar equivalent to the quantity actually exported by the sugar manufacturer, in accordance with the export quota allotted in pursuance of the decision of the ECC in its meeting held on January 10, 2013.
Secondly, the sugar manufacturer shall present the proof of such export to the Commissioner of Inland Revenue concerned along with the return for the tax period following the period in which such export took place. The sugar manufacturer shall also file the calculation in the form given in the Annexure to this notification along with the return. Thirdly, the quantity exported does not exceed the quota allotted in pursuance of the aforesaid decision of the ECC.
If a sugar manufacturer actually exports any quantity of sugar, only then the sugar manufacturer is allowed to charge the FED on equivalent quantity of local sale of sugar on supplies made in the tax period succeeding the tax period in which the export took place, they added.
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