Imported items covered: Reduced rate of 2pc tax shall be applicable from Nov 20, 2020

ISLAMABAD: The Federal Board of Revenue (FBR) has issued a legal clarification that the reduced rate of two percent tax shall be applicable prospectively from November 20, 2020 on imported items covered under SRO1240(I)2020 dated November 20, 2020 under reclassification procedure.

According to the clarification issued by the FBR to the Chief Commissioners and Chief Collectors of Customs, the Board has received many queries regarding prospective/retrospective application of SRO1240(I)2020 dated November 20, 2020.

The matter was referred to the committee on imported goods constituted under Rule 40B of the Income Tax Rules 2002.

The committee has decided that the SRO1240(I)2020 dated November 20, 2020 is prospective in nature and the reduced rate of two percent shall be applicable with effect from November 20, 2020 to the items covered under the said SRO, the FBR ruling added.

The scheme of advance income tax collection at the import stage was totally changed through Finance Act 2020. A Twelfth Schedule was added in income tax law, under which imported goods have been classified into three groups, i.e., plant and machinery, raw materials, and finished goods.

The three groups will be subjected to payment of tax at the import stage at the rates of one percent, two percent, and 5.5 percent, respectively.

The Board has allowed importers to reclassify their imported goods under the reclassification procedure for applicability of reduced rate of taxes. According to the reclassification procedure, the provisions shall apply to addition, omission or amendment of entries in the Twelfth Schedule, and application of reduced rate on goods falling under Part-ll of the said schedule imported by persons as raw material for its own use.

A taxpayer being an importer of a goods may apply to the Board to reclassify imported goods in the Twelfth Schedule to the Ordinance, if a capital goods has not been classified in Part-l; or a raw material has not been classified in Part-lI.

The new law now has further empowered the Board to specify goods, imported to be used as raw material for importers’ own use, to be treated as classified under Part II of the Twelfth Schedule.

Copyright Business Recorder, 2021