The Federal Board of Revenue (FBR) has decided to conduct income tax audit of ghee and cooking oil manufacturers for one year period to verify payments of income tax and withholding tax under Income Tax Ordinance 2001. The FBR has recently issued instructions to the Directorate Generals of Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) for audit purposes.
According to sources, the board has received complaints on issuance of audit notices to the ghee and cooking oil manufacturers for past 3-5 years. The FBR has asked the field formations to conduct audit for only one-year period and if there is any evidence or definite information of under-statement or concealment, the audit may be conducted for past years, sources said.
Sources said that the purpose of these audit instructions was to ensure audit of ghee and cooking oil manufacturers without causing harassment. When contacted, a tax advisor told Business Recorder that the audit could check the quantity of imported raw materials like palm oil by the ghee and cooking oil manufacturers and the capacity of the mills to check actual consumption of raw materials.
The audit may also confirm that all the quantity of imported raw material like palm oil by the ghee and cooking oil manufacturers has been consumed or not. The import of raw materials by ghee and cooking oil manufacturers was done for self-consumption purposes and exemption certificates were obtained from the concerned commissioners in the past. Thus, the raw material imported for self-consumption could not be sold in the local market.
The manufactures of cooking oil and vegetable ghee are required to collect income tax on purchase of locally produced edible oil at the rate of 2 percent of the purchase price. In the past, the FBR had directed the DGs LTUs/RTOs to monitor local purchases by ghee units for timely recovery of tax.
The purpose of the whole exercise was to improve withholding tax collection from non-compliant areas including locally produced edible oil. The enforcement of 2 percent withholding tax on purchase of locally produce edible oil would be done under clause (13C) Part II of the Second Schedule of the Income Tax Ordinance 2001.
According to the tax expert, withholding tax paid on the import of raw materials by commercial importers is final discharge of tax liability. In cases of locally produced oil purchases, it would be liable to 2 percent withholding tax. The record of the commercial importers needs to be obtained from the customs collectorates for verification of data.
However, the issue is primarily related to the imports made by the ghee and cooking oil units. During the audit, input output ratio of the imported raw material consumed by the ghee and cooking oil manufacturers needs to be verified. It may be ascertained whether the imported raw material has been locally sold in the market etc or not, tax expert added.