Power supplied to residential colonies of IPPs: FBR refuses to allow input tax adjustment

Federal Board of Revenue (FBR) has refused to allow input tax adjustment on electricity supplied to residential colonies of Independent Power Producers (IPPs), Business Recorder learnt on Thursday. Despite the fact that the input tax adjustment on electricity is only subjected to the residential colonies established in the business premises, the board has been proposed to allow input tax adjustment on electricity supplied to residential colonies of IPPs, sources said.
They said the permission for input tax adjustment to all residential colonies of IPPs would open the door for many other claims on supplies made to employees and their residences. However, the same is required for making taxable supplies. Similarly, the zero-rating facility on supplies of building material to EPZs is also intended to be against exports not for manufactured goods. "Although the building material is being exported, the said is manufactured goods," they said.
Replying to a question, they said the possibility of misuse could not be ruled out after granting permission of zero-rating on supplies of building material to EPZs. They said the permission of zero-rating could provide an opportunity to the tax evaders to declare their local supplies of building material as zero-rated to EPZs. Therefore, the board has shown reluctance to allow zero-rating on supplies of building material to EPZs, they maintained.
Moreover, they said there was a need for the special procedures to enable the taxpayers to pay sales tax on the value-addition, rather than on the full value. They urged the tax authorities that these special procedures should be reviewed from time to time, to remove anomalies, prevent misuse, and eliminate them when no longer needed.
The sources said the recommendation for removing section 8B (deposit of a minimum 10 per cent of output tax) was also opposed as this provision was introduced in order to curb the growing phenomenon of low or negative value addition being shown by many registered persons to avoid payment of sales tax. They said many persons are presently trying to avoid or evade taxes through such means and this recommendation would also provide chance to continue this illicit activity.