Raw materials, finished goods’ tariffs: FBR to remove anomalies from federal tax laws

ISLAMABAD: The Federal Board of Revenue (FBR) will remove anomalies from the federal tax laws, specifically corrections in import tariffs of raw materials and finished goods in line with the budget recommendations of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI).

In this regard, the FBR is examining the budget proposals of the FPCCI for 2022-23.

Engr MA Jabbar, Vice President FPCCI told Business Recorder that the FPCCI budget proposals were based on receipt of budgetary required corrections/incorporation in budget from trade bodies and stakeholders, interest groups for recommendation to the government. The FPCCI had a session with the finance minister and chairman FBR with his team in this regard.

According to the FPCCI, the PCT in Pakistan is limited to only eight digits however, globally countries have extended HS Codes up to 16 digits. Malaysia, China, the US, and Turkey have extended up to 9, 13, 10, and 12 respectively.

Due to limited HS Codes, raw materials face high duties since they fall under the same code as finished goods. Pakistan should extend HS Codes up to 12 digits to resolve anomalies and rectify anomalies in the tariff regime. This would resolve several anomalies related to imports of raw materials and finished goods.

Finance minister and chairman FBR was requested for further discussion on specific issues which are partly agreed. He said FPCCI President Irfan lqbal was of the view that budget-making should be anomalies free if the second round is held with the FBR to capture the difference of opinion and squeeze the difference to balance the rights of taxpayers against tax collection and tax enforcement agency, Jabbar added.

The FPCCI budget recommendations are broadly covering the promotion of ease in doing business by enhancing the level of automation, broadening the tax base by aligning sectoral share in revenues with that of GDP, fiscal reforms to optimize deficits by both revenue mobilization and expenditure reduction, tariff rationalization by implementing cascading tariff structure to promote local industry and tame inflation; simplification of tax regime by rectifying anomalies and minimizing the number of tax payments and avoidance of unnecessary procedural requirements, ad hoc concessions/exemptions using SROs, and curbing discretionary power of authorities.

Taxpayers, specifically integrated retailers, are facing hardship due to admissible Input already claimed In previous tax periods, u/s Section 21 (2) of the Sales Tax Act, 1990 read with Rule 12(a)(i) and 12(a)(i)(E) for recovery or alleged inadmissible Input. Due to the legal anomaly, field formations issue notices regarding alleged illegal adjustment of input tax on the strength or purchases made from suspended/blacklisted person, without considering the fact that at the time of the transaction the supplier was appearing as an operative/ active on FBR Portal, it recommended.

Under the Federal Excise Act 2005, the federal government has imposed Federal Excise Duties on various Services such as Travel, Advertisement, Insurance services, etc. The Table II of the Third Schedule lists the Excisable Services as well. There is a special clause inserted stating that services subject to sales tax are exempted from Federal Excise Duty.

Table II of the Third Schedule of Federal Excise Duty Act 2005 provides exemptions to marine insurance for export, life insurance, crop insurance, and livestock insurance. To encourage the insurance culture among low and middle-income groups, the exclusion must cover micro insurance products as well.

It is proposed to revise Schedule III by removing the list of excisable services of those who pay Sales Tax. In addition, the following insurance companies must be included in the exemption: Health insurance, Personal Accident Insurance, Travel Insurance, and Home property/Household Insurance.

The recommended action would remove the anomaly. It will help avoid the double taxation risk. As sales tax on the services has already been collected by the Provinces, to promote Services Sector, the Federal Excise duty proves to be a burden on the services sector.

Some items of the leather industry are being classified under the same HS Code despite the difference in their nature. The raw materials are then charged with the same customs duties as intermediate/finished goods. Such anomaly is also found in the leather industry, FPCCI stated.

Therefore, in line with this recommendation, it is proposed that uniform duties be set for importers of the steel/metal industry and the anomaly among mentioned importers must be eliminated, the FPCCI added.

Copyright Business Recorder, 2022