The Federal Board of Revenue (FBR) will propose maximum tax incentives to encourage investment in new industries to be established in Federally Administered Tribal Areas (FATA) while presenting the next Finance Bill. Sources told Business Recorder here on Tuesday that the assurance of new tax incentives to FATA has been given by the tax authorities to the members of the Committee on "Accelerated Economic Development of FATA," led by its Chairman Engr. Nauman Wazir with Chairman FBR.
The meeting discussed various options for allowing tax incentives and ways to mitigate the constraints faced by FATA industries particularly when sales are made in the settled areas of Pakistan. Sources said that Engr. Nauman Wazir gave an overview of the security situation and the imperative long-term solution of militancy in FATA through fast-tracking economic development through industrialisation. He stressed that FATA has abundant resources that could be effectively tapped if attractive incentives are allowed to encourage investment as is being done in the other parts of the country through establishing SEZs etc. Currently, apart from the law and order situation, such investments are discouraged by the inhibitive tax regime and procedures when FATA goods enter the markets in the settled areas.
On request by Nauman Wazir Shahid ur Rehman, President of the Tribal Chamber of Commerce and Industry (TACCI), further elaborated the plight of FATA businesses and industrial concerns in particular, and stressed the need for doing away with discriminatory treatment under the existing laws and procedures and allowing maximum incentives to these businesses to be sustainable.
On a query by the Chairman FBR regarding the treatment of FATA industries within the existing tax regime, Zahid Shinwari (Ex-President KPCCI) explained that only customs duty and Federal Excise duty stands extended to FATA. Though Sales Tax Act and the Income Tax Ordinance are not extended to FATA, this does not make any difference on ground as these two taxes are charged by FBR authorities not only at the import stage but also at the time when goods manufactured in FATA enter the limits of the settled districts. The existing law allows sales tax adjustments and refunds only to registered persons and since it has not been extended to FATA, no such registration is technically possible for business within FATA. Resultantly a manufacturer in FATA is clearly at a disadvantaged position vis-à-vis his counterpart in the settled areas. The former can neither pass-on the sales tax deducted from him nor can claim refund.
Highlighting the need for incentivising industrial investments in FATA, Zahid Shinwari pointed out the following key requirements. Firstly, sales tax registration will be allowed to FATA industrial units to be in a position to seek adjustments/refunds of taxes deducted. Secondly, down country movement of goods must be allowed without payment or sales and withholding income tax. Thirdly, bonded warehouse facility should be allowed in FATA.
Amir Javed CA added that for the ease of monitoring and prevention of misuse, government could designate certain industrial estates within FATA for the purpose of sales tax registration and allow exemption from custom duty; Sales and Income tax on import of machinery and raw materials and withholding tax on sales made in the settled areas.
While appreciating the role of the Committee to put FATA on road to sustainable peace through economic development, the Chairman FBR requested the Committee to come up with a working paper outlining the incentives and proposed amendments in laws and procedures for the consideration of FBR. Tax authorities stated that while his team would be willing to recommend maximum incentives to encourage investment in FATA in the next finance bill, the only caveat that should be kept in foresight is the possibility of misuse. Tax authorities have advised that the Committee should therefore consider viable mechanisms whereby such possibilities could be averted. He nominated Member Inland Revenue Operations, Ashraf Khan as a focal person of the FBR for the purpose of fine tuning recommendations on the above lines.
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