Tax experts criticise reduction in ST on imports

Tax experts said the decision to reduce sales tax on imports by 1 percent and the waiver of Special Excise Duty (SED) from June 20, 2011 has distorted the level playing field among businesses. They said the Federal Board of Revenue (FBR) has reduced the rate of sales tax on imports from 17 per cent to 16 per cent besides waiving SED from June 20, 2011.
These measures, though originally planned to take effect from July 1, 2011, have been taken in view of the reported fiscal pressures, which the importers were facing in view of high rate of tax/duty. They termed the decision as illogical, saying that the FBR ruling dated June 21, 2011 had several legal and practical issues, which had distorted the level playing field among businesses.
When contacted Adnan Mufti FCA, Partner - Shekha & Mufti, Chartered Accountants said it was unfortunate that the government keeps on promoting the trading economy at the cost of industrial sector. He said the importers are now allowed to pay 16 per cent sales tax on the imports of duty free goods. While on the other hand, the manufacturers/distributors procuring identical goods from local market are liable to pay 17 per cent sales tax and 2.5 per cent SED on all inputs.
Since tax credit against SED has a restricted scope, virtually major part of duty paid on other inputs is absorbed by the manufacture in his cost. This will yield divergent market prices for similar product; a higher sales price set up by manufacturer, as compared to that fixed by the importer. He said that there is no logic behind such incentive when commercial importers operate under a final tax regime. According to the Sales Tax Special Procedure Rules 2007, the commercial importer pays a value addition tax at the rate of 2 per cent, which is treated as his final tax liability. Besides, they are already immune from SED at supply stage. On the contrary, manufacturers operate under normal tax regime and pay sales tax and excise duty attributable to their value of supply. Mufti further said the authorities concerned instead of granting such incentives only to the importers should offer the same to all business segments.