The Federal Board of Revenue has directed all Chief Commissioners of Regional Tax Offices (RTOs) to investigate whether huge sales tax evasion and underinvoicing of imported spare parts is taking place, due to non-registration with the sales tax by certain auto sector dealers.
Sources told Business Recorder on Monday that the FBR has received a representation from Association of Pakistan Motorcycle Assemblers (APMA), Karachi regarding sales tax evasion and underinvoicing of imported parts by auto sector dealers. The FBR has directed the Chief Commissioners of RTOs to investigate the aspect of sales tax evasion and under invoicing by the said sector. The Board has further directed the Chief Commissioners of RTOs to submit the report on priority basis.
According to the APMA, the government should abolish the condition from buying parts from commercial importers for the assembly of motorcycles. Currently, a number of assemblers are procuring smuggled parts from the markets due to the above condition. This mis-procurement leads to illegal assembly of vehicles, resulting in substandard production of vehicles and above all creating uneven playing field for genuine players. The firms engaged in such unscrupulous activity are putting a colossal dent on national kitty through evasion of duties and taxes.
The government should immediately announce a motorcycle policy and it should contact the stakeholders who are ready to give positive suggestions keeping in view their vast experience, it said. APMA was of the view that the increase in taxes and duties would improve revenue and bring many sectors into the tax net. The businessmen had already warned the government not to impose any fresh tax as it would trigger inflation besides raising cost of doing business.
The Chinese bike assemblers have set their eyes on ministry of finance and EDB for a good policy. The assemblers are highly hopeful especially of Finance Minister Ishaq Dar due to his vast experience in running the affairs of finance ministry. Finance Minister will take such steps which would encourage assemblers to come out with new models especially replacing the decades-old 70cc bikes which do not exist in any of the country. The government should bring a change by abolishing the SRO culture as the Finance Minister promised in his budget speech.
It said that the government has also not called upon any meeting with Chinese bike assemblers and yet to discuss future road map of the two wheeler industry. In the last 14 years, Pakistan Automotive Manufacturers Association (PAMA) and PAAPAM had strong hold in policy making of the government including tax structure. Chinese bike assemblers' body (APMA) and various Chinese vehicle manufacturers had failed to get representation in policy making.
It is high time that the government should take into account the development of Chinese bike assemblers and their thriving vendor base relating to production, sale and market share before finalising a new policy for the entire auto sector. All zero rated imports must be fixed at minimum five per cent customs duty. In auto sector, all the Input Output Ratio Certificates (IORCs), which are valid up to June 30, 2013 should not be revalidated and one customs duty on imported parts and one customs duty on CBU imports (eg for two wheelers customs duty on CKD parts (localised or non-localised) should be fixed at 25 per cent. Currently non localised parts have 10 percent customs duty and duty on localised parts is 38.75 percent. The customs duty on CBU two wheelers should not be more than 45 percent, which is currently over 50 per cent.
The government which issues lists for import through EDB to OEMs and assemblers should be abolished immediately as it was cumbersome and time consuming exercise. Besides, the entire auto sector is burdened with many SROs and notifications and there must be one policy document or the SRO or notification for entire sector which will discourage corruption.
The valuation advises and ruling issued in the last 10 years on auto sector should be scrapped immediately as they had only encouraged informal trade through various channels and mis-declaration. Due to this, a culture of smuggling of parts and other items has developed. The government should also strive hard to register all dealers of two and four wheeler including the entire auto sector stakeholders in the sales tax net.
In the last 10 years, there was huge sales tax evasion and under invoicing of imported parts due to non registration in sales tax by auto sector dealers all over Pakistan, association maintained.
It is high time that the government should frame such policies which would lure new investors for which the government has to simplify laws as there are reports of tax evasion. A uniform policy is needed. The government should also ponder on fixing an age limit of two wheelers as people still own decades old bikes.
It further opined that the exports refunds of many industries had been in doldrums as the Afghan Customs had been computerised which did not provide a copy of the invoice of the cleared consignments to the importers. The Afghan customs was relying upon a computer generated invoices and did not provide any document on the clearance of goods to the Pakistani exporters. The government should realise that this segment of the engineering needs little power and gas for running and the government should encourage them so that more jobs could be created, it added.
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