The Large Taxpayer Unit (LTU), Karachi, has sought permission from Central Board of Revenue (CBR) to cancel withholding tax exemption certificates issued to cement manufacturers for import of coal.
Sources told Business Recorder on Sunday that LTU, Karachi, has requested the CBR to give its concurrence on the issue whether the exemption certificates issued to cement manufacturers may be cancelled or not.
Sources said that a Commissioner of LTU, Karachi, has informed the CBR that cement manufacturers have declared coal as fuel for claiming withholding tax exemption under Circular No 2 of 2003 and Section 148 of Income Tax Ordinance 2001. Withholding tax exemption was obtained by claiming coal as a raw material by the cement industry.
Under Circular 2 of 2003, three categories of manufacturers are entitled to exemption certificate under section 148 for import of raw materials (other than edible oils), plant, machinery and equipment, for their own use in an industrial undertaking:
i) Manufacturers who are liable to pay advance tax under section 147;
ii) manufacturers who are not liable to pay advance tax under section 147 but have paid tax equal to the amount of tax paid in the immediately preceding year and ii) manufacturers who are not likely to pay any tax due to exemption of income, depreciation allowance or brought forward loss.
LTU, Karachi, has pointed out that coal is not a raw material, and cement manufacturers have wrongly claimed exemption of withholding tax on import of coal by claiming it as a raw material for the industry.
Recently, a few cement manufactures had approached the LTU for claiming fresh exemption on import of coal. LTU analysed the previous tax records, which showed that withholding tax exemption certificates were also issued in the past. However, LTU, Karachi, opined that coal does not qualify for withholding tax exemption.
LTU wants to cancel all such exemption certificates, but this may result in a hue and cry from the concerned industry, sources added.
They said that there was possibility of strong reaction following cancellation of such certificates. As such, the LTU has asked CBR for guidance on the issue.
A Karachi-based leading tax consultant said there were chances that some manufacturers imported coal as raw material and claimed exemption of withholding tax. But, instead of using the same as a fuel, they sold the same in the market. Obviously, if they sold the coal in the market, they have to pay the liability, anyway.
Besides, if the LTU cancels the exemption certificates issued in the past, it would not have any revenue impact, as it was not their final tax liability. The liability of the manufacturers could be adjusted later and they would have to pay the liability. The CBR will also be able to stop the issuance of exemption certificates to these manufacturers in future, if required.
The CBR is examining the viewpoint of LTU, Karachi, to finalise the issue, sources added.