Some tax experts have strongly objected to certain clauses of the revised Statutory Regulatory Order (SRO) for the zero-rated sectors issued on Friday with the apprehensions that some provisions of the notifications may cause revenue loss to the national kitty.
Commenting on the revised SRO, Arshad Shahzad, a leading Karachi-based tax consultant told Business Recorder on Friday that some of the clauses of the notification may back fire and cause substantial revenue loss to the government exchequer.
Firstly, commercial import of any such 184 items would now attract zero rate of sales tax, whereas any such item if sold to un-registered person will only attract 4 percent sales tax under new provisions of the law. Hence the government may lose 17.5 percent revenue in shape of sales tax (ie standard rate 17 percent, + value addition tax 2 percent + S.E.D. 2.5 percent - less 4 percent reduced rates) on all those items which has usage in multiple industries, if imported at zero rate and then sold to un registered sector), he made calculations.
It is also observed that upon zero rated sales of packing material and other likewise items, there is substantial probability of accruing corresponding refund to those specific sectors. The identification and verification of registered buyers who may use these items in five export-oriented sector is practically may not be an easy job for supplier or even to tax machinery.
He opined that the person exclusively registered as retailers would now required to pay 4 percent sales tax on purchase of notified items and also requires to pay turnover tax under special procedure meant for retailers. On the other hand, the person registered as composite unit who also operate as retailer would though requires to pay 4 percent sales tax on their sales value but not required to pay turn over tax. This apparently seems to create a disparity between both the retailers working differently.
Arshad Shahzad further argued that there is no specific direction given regarding applicable rate of sales tax for dyes and chemicals or other goods included in the list of 184 for its sales to un-registered sector, whether it may attract 6 percent or 4 percent.
The status of domestic zero rating was modified through notification 231(I)/2011 which was held in abeyance by internal instructions of the board dated 28th March 2011, the procedural changes was now given effect retrospectively from 15th March 2011 by this notification 283(I)/2011. The question arises what is the fate of the persons who has already charged standard rate of sales tax by virtue of first notification 231? Or what would be the fate of that supplier who after instructions of held in abeyance for notification 231 did not charge sales to their supplies to manufacturer who does not belong to these five export oriented sector? He questioned.
He explained that the Federal Board of Revenue has issued modified procedure for domestic supply zero rating for supply chain of five export-oriented sectors. It was the long debated issue, where the government keen to ensure sales tax revenue collection on domestic consumption of these item without obstructing local supply chain of five exports oriented sectors to avoid notorious sales tax refund prone regime.
Explaining the salient features of the SRO, he said that the notification for the procedural purpose will take effect retrospectively from 15th Mar 2011. The notification for the purpose of tax liability accrued in subsequence to this notification would take immediate effects.
He said that 184 items including raw material and packing material used or useable in five export oriented sectors are declared zero rate at local purchase or import stage for their complete registered supply chain. The sales of these items to un-registered person or persons registered, as retailer would attract 6 percent reduced rate of sales tax up to the yarn stage. However, the sales of these items to un-registered person or persons registered, as retailer would attract 4 percent reduced rate of sales tax subsequent to the yarn stage.
He said that the standard rate of sales tax would attract on sales of these items if sales were made to sector other then these five export oriented sector. The facility of zero rate increases from 141 items to 184 items. He further said the number of new items having significant importance including corrugated paper/paper board boxes, polythene bag, caustic soda liquid, tallow, soda ash etc are now attract zero rate of sales tax for these export oriented sectors, Arshad Shahzad observed.
The inclusion of new items in the notification would substantially reduce accrual of sales tax refunds to these five export oriented sectors. The persons engaged in business activity of these items if got registered after issuance of notification by 30th June would immune from their past sales liability and would not eligible to seek any past refund.
He added that the FBR has seemed to put his all out efforts to intact zero rating of five export oriented sector which ultimately support the countries valuable export as well as to limit the apprehension for stake holder of these sector. This may also pave way for their march toward introduction of reform general sales tax to other untapped potential sectors with getting go ahead from trade and business community. The government may also now at-least start getting revenue in shape of sales tax from these sectors.