Foreign investors operating in EPZ: FBR ‘inadvertently’ withdraws tax exemption

ISLAMABAD: The Federal Board of Revenue (FBR) has inadvertently withdrawn sales tax exemption to the foreign investors operating in the Export Processing Zone (EPZ), as they operate in a universally-accepted completely different mechanism for export promotion.

In this connection, leading chartered accountant and former chairman FBR Shabbar Zaidi has approached the Finance Minister, Shaukat Tarin, on the sales tax on imports by the investors of the EPZ under the Finance (Supplementary) Act, 2021.

According to the top chartered accountant, the government has not changed the policy regarding levy of duty and taxes on investors in the EPZ.

The investors operating in the EPZ established under the Export Processing Zone Authority Ordinance, 1980, are not subject to fiscal and other laws in Pakistan.

These persons operate in a completely different mechanism, which are universally-acceptable principles for operating free zones for export promotion. No foreign exchange of Pakistan is involved in any import made by these persons.

He said that the goods imported from abroad and from the tariff area are exempt from customs duty and sales tax under SRO 88(I)/80 dated August 23, 1980.

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A special procedure for the same has been laid down in Customs Export Processing Zone Rules, 1981.

This SRO has been practically applicable since inception.

Entry 102 of Table 1 of the Sixth Schedule to the Sales Tax Act, 1990 is a continuation of the same principle. It is considered that through an inadvertent understanding Entry 102 of Table 1 of the Sixth Schedule to the Sales Tax Act, 1990 has been deleted by the Finance (Supplementary) Act, 2021. As a result, unnecessary problems are being created for the investors in the EPZ with respect to duties and sales tax at import stage after the effective date of the aforesaid act which was January 14, 2022.

“We consider that we are correct to understand that there is no policy change on this matter by the Government of Pakistan with respect to levy of duty and taxes on investors in the EPZ,” he said.

Zaidi stated that the action undertaken through the Finance (Supplementary) Act, 2021 is considered an inadvertent understanding for the reason that it is clear the Government of Pakistan has no intention to withdraw any concession or privilege conferred to the foreign investors for operations in the EPZ and the matter is clear.

It is therefore suggested that necessary clarification is issued to the effect that investors in the EPZ are not subject to duties and sales tax at the import stage.

It is to be noticed that imports by EPZ are governed by a completely different regime specially laid down for such persons, he said.

Under Section 25 of the EPZ Ordinance, 1980 the federal government is entitled to provide exemption to the investors from the provision of any law applicable in Pakistan.

It is therefore suggested that appropriate action be undertaken for the restoration of the position as was there before the Finance (Supplementary) Act, 2021, Zaidi added.

Copyright Business Recorder, 2022