The Federal Board of Revenue (FBR) will issue statutory regulatory orders (SROs) to do away with the budgetary anomalies in tax rates introduced through Finance Act 2014, extending sales tax exemption to the pharmaceutical raw materials, where customs duty does not exceed 10 percent. Sources told Business Recorder here on Friday that the budget anomalies have been pointed out while rescinding the SROs in budget 2014-15.
The new SROs would not have any revenue implications, but only rectify budget anomalies in (2014-15). The SROs would be issued with the objective of resolving two unintended situations that have arisen as a result of budgetary measures introduced for 2014-15 through the Finance Act. Through Finance Act 2014, certain SROs were rescinded and exemptions available under rescinded SROs were transposed to Sixth Schedule to the Sales Tax Act, 1990 and Fifth Schedule to the Customs Act, 1969. During this budgetary exercise, anomalies in some tax rates have been pointed out which would be rectified through issuance of new SROs. The rectification of budgetary anomalies would be done away through new notifications.
Under another proposed SRO, the FBR will restore the pre-budget (2014-15) status of jewellers for applicability of sales tax. Sources said that the first case is related to the sales tax exemption on import of raw materials for basic manufacture of pharmaceutical active ingredients and pharmaceutical products. Before the budget 2014-15, S.No 11 of SRO 551(1)/2008 dated 11.06.2008, provided sales tax exemption on pharmaceutical raw materials as under: Description of goods: Raw materials for the basic manufacture of pharmaceutical active ingredients and for manufacture of pharmaceutical products. Conditions: Import and supplies thereof provided that where such raw materials are imported then only those raw materials shall be entitled to exemption under this notification which are liable to customs duty not exceeding ten per cent ad-valorem, either under the First Schedule to the Customs Act, 1969 (IV of 1969) or under a notification issued tinder section 19 thereof.
It can be seen that exemption to imported raw materials was available on fulfilment of the condition that the raw materials would be subject to customs duty at a rate not exceeding 10%, either under First Schedule or under a customs notification. Accordingly, this exemption of sales tax was available to raw materials specified in customs notification No SRO 567(1)/2006 to which concessionary rate of customs duty at 5 percent was applicable, sources said.
As part of budgetary exercise, both aforesaid SROs, ie SRO 551(1)/2008 and SRO 567(1)/2006 were rescinded by SRO 573(1)/2014 and SRO 563(1)/2014 both dated 26.06.2014, respectively and exemptions available under rescinded SROs were transposed of Sixth Schedule to the Sales Tax Act, 1990 and Part-II of Fifth Schedule to the Customs Act, 1969. However, the language of the conditions for sales tax exemption remained the same in Sixth Schedule of the Sales Tax Act, 1990 as it was in the rescinded SRO 551(1)/2008. As a result, the condition to the effect that the customs duty under the First Schedule to the Customs Act or a notification issued thereunder should not exceed 10 percent, remained unfulfilled for the reason that the reduced rate of 5 percent customs duty was now prescribed under the Fifth Schedule to the Customs Act, 1969, and not under a customs notification.
Sources said that the Pakistan Pharmaceutical Manufacturer Association (PPMA) has submitted a representation to the Board highlighting tile a fore-stated anomaly and requested for resolution by issuing exemption notification under section 13 of the Sales Tax Act, 1990, w.e.f. June 26, 2014. The same is supported as the measure has no revenue implication and is aimed at rectification of an unintended consequence.
It is, accordingly. proposed to grant sales tax exemption through a notification issued under section 13 (2) (a) of the Sales Tax Act, 1990, to the raw materials covering also the condition that customs duty does not exceed 10 percent under "Fifth Schedule to the Customs Act, 1969" with effect from 26th June, 2014.
The second issue is related to the value-of supply for gold jewellery by retailers. The import and local supply of un-worked silver and gold is exempt from payment of sales tax under S. Nos. 36 and 37 of Sixth Schedule to the Sales Tax Act, 1990. Prior to the budget for current year, retailers were generally liable to pay sales tax @ 0.75 of their turn over. Jewellers were entitled to exclude the value of gold or silver used in the jewellery supplied for the purpose of calculating their turnover. Sub-rule (4) of rule 5 of the Sales Tax Special Procedures Rules, 2007, relating to supplies by retailers is provided as under:
"(4) While determining his turnover, a jeweller shall be entitled to exclude the value of gold or silver used iii the jewellery supplied, provided that such assessable value for turnover is not less than ten per cent of the actual sale price excluding the amount of tax."
The sales tax regime for retailers was reviewed in 2014-15 and two tier scheme was introduced through budgetary measures. For this purpose, rules 3 to 10 of the Sales Tax Special Procedures Rules, 2007 were substituted. In this process, the sub-rule (4) of rule 5, as noted above, was also substituted and no corresponding clause could be included in the newly inserted rules. As a result, the entire value of jewellery manufactured by jewellers has become liable to sales tax @ 17 percent instead of the value addition portion of jewellery.
In a meeting in FBR, representatives of retailers have raised aforesaid issue and highlighted that jewellers-cum-retailers tailing in tier-I ie the standard sales tax regime would be grossly affected as each time they would have to pay sales tax on total value of jewellery sold including value of gold or silver, which would put a heavy burden on the consumer. The contention is justified. Therefore, the omission as aforesaid needs to be undone and the substituted provision of sub-rule (4) of Rule (5) need to be revived and added as a sub-rule to the new provisions. This is proposed to be rectified through a notification amending the said rules. The proposal has no revenue implication as it would simply restore the pre-budget provisions in relation to jewellers, sources added.
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