The Federal Board of Revenue has rejected issuance of withholding tax exemption certificate on the supply of iron and steel products used as raw materials in the finished products such as auto parts by local manufactures.
Sources told Business on Thursday that the FBR has issued instructions to the Director Generals of Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) to accurately interpret clause 46A of Part-IV of the Second Schedule of the Income Tax Ordinance 2001 and section 153 of the Ordinance.
The FBR has issued the clarification on the request of a company, which was denied exemption certificate by Regional Tax Office, RTO Karachi under section 153 of the Income Tax Ordinance 2001.
According to the FBR instructions, the specific request of an importer-cum-manufacturer for issuance of exemption certificate under section 153 of the Income Tax Ordinance 2001 is not admissible under the law.
The clause (46A) of Part-IV of the Second Schedule to the Income Tax Ordinance 2001 is restricted to the manufacturer of "iron and steel products" and not to all products in which iron and steel has been used as raw material such as auto parts.
The refusal of exemption certificate by the department on this basis has been confirmed by the Sindh High Court in CP No 1666/2008 decided on February 18 2009, FBR directive added. According to 46A, the provisions of sub-section 5(6) of section 153 shall not apply to any payment received by a manufacturer of iron and steel products relating to sale of goods manufactured by him. Under relevant sub-section of the section 153, the tax deducted shall be a final tax on the income of a resident person arising from the transaction.