The Federal Board of Revenue (FBR) has imposed 2 percent sales tax on five export-oriented sectors - textile, leather, surgical, carpets and sports from March 1, 2013. The FBR has amended SRO.1125(I)/2011 through an SRO.154(I)/2013 on Friday to bring supplies of five-leading sectors into the formal value added tax (VAT) regime.
According to the FBR, the zero-rating scheme of the five export-oriented sectors has been modified to withdraw zero-rate of sales tax and instead introduce 2 percent sales tax on supplies to five sectors (except utilities). The rate of sales tax for outside the five sectors has been kept intact at 5 percent.
Through SRO.154(I)/2013, the FBR said that the benefit of this notification shall be available only to persons doing business in textiles (including jute) carpets, leather, sports and surgical goods sectors, who are registered as manufacturer, importer, exporter or wholesaler under the Sales Tax Act, 1990, and appear on the Active Taxpayers List (ATL) on the website of FBR.
The SRO.154(I)/2013 shall apply from spinning stage onwards, in case of textile sector; production of PTA or MEG, in case of synthetic sector; regular manufacturing, in case of carpets and jute products; tannery onwards, in case of leather sector and organised manufacturing, in case of surgical and sports goods.
On import by registered manufacturers of the five sectors, sales tax shall be charged at the rate of 2 percent on goods useable as industrial inputs. The import of finished goods ready for use by the general public, shall be charged to tax at the rate of two per cent and value addition tax at the rate of two per cent, FBR said.
The FBR said that the supplies of goods, usable as industrial inputs, to registered persons of the five sectors shall be charged to tax at the rate of two per cent, whereas supplies to persons not belonging to the said sectors shall be charged to tax at the rate of five percent. The supplies of finished products of the specified sectors to registered retailers shall be charged to sales tax at the rate of two per cent.
The FBR stated that the registered persons engaged in the retail sale of these goods shall pay sales tax at the rate of two per cent on their retail sales and shall be entitled to input tax adjustment. Such goods supplied at the rate of two per cent shall not constitute part of turnover for the purpose of turnover tax payable as prescribed under Chapter III of the Sales Tax Special Procedure Rules, 2007.
The registered manufacturers who process goods owned by others shall charge sales tax at the rate of two per cent on the value of goods, inclusive of processing charges received by them. Explanation: For the purposes of this provision, and in terms of the proviso to sub-section (33) of section 2 of the Sales Tax Act, 1990 the return of goods by the processor to the principal after processing shall constitute supply, and the value of supply of such goods shall be the open market price of such goods inclusive of the processing charges.
The FBR said that a registered person, who consumed any other input acquired on payment of sales tax, shall be entitled to input tax adjustment or, as the case may be, refund against taxable supplies made by him, subject to the relevant provisions of the Sates Tax Act, 1990 and Rules made there under. The registered manufacturers shall be entitled to adjustment of input tax paid, subject to the relevant provisions of the Sales Tax Act, 1990 and Rules made there under and supply electricity and gas to the registered manufacturers or exporters of the five sectors shall be charged sales tax at the rate of zero per cent in the manner specified by the Board.
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