Packing material: 'exporters can continue to claim input tax credit/refund'

A Karachi-based sales tax expert has given an opinion on the SRO1125(I)/2016 that exporters of five export oriented sectors can continue to claim input tax credit/refund on packing material consumed to the extent of goods exported. A leading sales tax expert of Karachi has given an opinion on the input tax credit/refund of sales tax paid on packing material under SRO1125(I)/2016 read with SRO 491(I)2016.
Reference to queries on admissibility of sales tax refund to exporters after amendment brought in SRO 1125(I)/2011 through issuance of SRO 491(i)/2016 dated 30th Jun 2015, the issue has been reviewed carefully and expert has given an opinion and legal position in the light of the relevant amendments.
By virtue of the amendment brought under special regime for five export oriented sectors, following restriction was introduced in SRO 491(i)/2016: "Provided that no input tax credit or refund shall be admissible on the packing materials of all sorts, expert referred to the condition of the SRO 491(i)/2016.
According to tax expert's viewpoint notification 1125(I)/2011 is issued in terms of powers conferred under section 3 and clause "C" and "D" of section 4(1) of the S.T.A. 1990. The notification 1125(i)/2011 provides a special regime for supplies of goods at reduced or zero rate of sales tax to five export oriented sector subject to certain condition and limitation. This scheme / regime apply to entire supply chain from manufacturing to wholesale stage.
On the other hand, exports are zero rated in terms of section 4(1)(a) of the Sales Tax Act., 1990 and accordingly exporters are entitled to seek refund in terms of section 10(1) of the S.T.A. 1990 read with rule 26(A) of the sales tax rules 2006.
The referred condition for disallowance of input tax credit or refund on packing material is a part of notification 1125(i)/2011 only hence we understand its applies to person making supplies in terms of this notification. All other persons if making supplies other than this regime could not be affected by the restriction, he said.
Keeping the said scenario and legal position, expert is of the view that persons making local supplies of industrial input or finished goods enlisted under SRO 1125(I)/2011 dated 31st December 2011 w.e.f. 1st July 2016 are no more entitled to claim input tax credit or refund on packing material against zero rated / reduced rate supplies in terms of SRO 1125(I)/2011.
As far as exporters including exporters of five export oriented sectors are concerned since exports are zero rated in terms of section 4(1)(a) of the sales Tax Act, 1990. They are not affected by the referred restrictive condition and therefore can continue to claim input tax credit / refund on packing material consumed to the extent of goods exported in terms of section 10(1) read with sales tax refund rules 2006, tax expert added.