The Federal Board of Revenue has decided to issue notification next week of a single rate of 5 percent sales tax on the local supplies made to un-registered taxpayers of five export oriented sectors - textile, leather, carpets, surgical and sports goods.
Sources told Business Recorder here on Thursday that the FBR has finalised the working on the draft notification in active consultation with the stakeholders particularly representatives of zero-rated sectors. The financial implications of the notification have also been analysed. The FBR will send the draft notification to the Law and Justice Division for vetting and it is expected that the notification would be issued next week.
According to sources, the specified goods (useable as industrial inputs) covered under the revised notification if imported by the registered manufacturers (including manufacturer-cum-exporters) of textile, carpets, leather, sports and surgical goods sectors, shall be exempt from sales tax. However, the goods imported by the registered commercial importers shall be charged to sales tax @ 5 percent of the value.
On local manufacturing, purchase or supply side, the new notification shall, in case of textile sector apply from ginning stage onwards (for synthetic sector from production of PTA and MEG) and in case of other sectors, from the first organised manufacturing stage onwards.
Sources said that the supplies of these goods to registered persons upto wholesale stage shall be zero-rated. The supplies of these goods to retailers both registered and unregistered shall be charged to sales tax @5 percent of the value. Where a registered person has acquired goods at reduced rate of sales tax of 5 percent, he shall be entitled to input tax adjustment or as the case may be refund against the subsequent supplies made by him either at reduced rate or as the case may be, at zero rate.
Sources said that a registered person who has consumed any other inputs not covered in new notification acquired on payment of sales tax, shall be entitled to input tax adjustment or as the case may be, refund in respect of the supplies made by him either at reduced rate or at zero rate.
The registered persons who are solely or otherwise engaged in the retail business of these goods or products shall pay sales tax at the reduced rate of 5 percent on their retail sales and shall be entitled to input tax adjustment or as the case may be, refund against such sales and they shall not be required to pay any other upfront sales tax on their such retail transactions. Where in the case of registered manufacturer-cum-retailers, amount of claimable refund exceeds the amount of tax payable by a registered person availing new notification, he may minus the tax liability from his refundable amount and claim refund of the balance amount, if any.
Sources said that the registered industrial units who process goods owned by unregistered persons shall charge sales tax at reduced rate of 5 percent on the processing charges received by them provided that no tax shall be charged from the registered principals.
The registered manufacturers shall be entitled to the adjustment of input tax paid on machinery parts or spares and lubricants acquired by them for their own use. All finished products of the said five sectors shall, if sold to the end consumer, be charged to sales tax at 5 percent of the value.
Sources said that the benefit of the new notification will be available if the goods covered in the notification are used in the specified sectors for the purpose of manufacturing or trading. Provided that in case of registered manufacturers engaged in the manufacture of mix range of products, who are acquiring bulk inputs for use in the manufacture or production of goods for the aforesaid five sectors as well as for other non-concessionaire sectors, shall be entitled to import or purchase their bulk supplies of inputs without payment of tax or as the case may be at zero rate provided that they pay sales tax due on the supplies of their outputs to non-concessionaire sectors and maintain proper records for production and sale of non-concessional and non-concessional categories of outputs. Sources said that the supply of electricity and gas to the registered manufacturers of the above mentioned five sectors shall be zero rated in such manner and to such extent as may be specified by the FBR.
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