The Federal Board of Revenue has proposed to the Ministry of Finance to withdraw fiscal relief package including sales tax and federal excise duty exemptions/concessions granted to the business community and investors operating in the Khyber Pakhtunkhwa and Tribal Areas in the upcoming budget (2011-12) to generate additional revenue of Rs 10-12 billion during next fiscal year.
Sources told Business Recorder here on Tuesday that the FBR has further proposed to increase the annual budgetary allocations of the KP to compensate the province instead of creating discriminatory tax treatment among provinces. The distortions in the tax system among the provinces should be removed by compensating the KP by increasing their budgetary allocations for 2011-12. Therefore, a uniform tax system must prevail for all businesses in all four provinces of the country.
The FBR had announced a fiscal relief package for the KP and Federally Administered Tribal Areas (Fata) in 2001 to allow different kinds of tax exemptions and concessions. Business entities owing any'' amount due to the government in form of customs duty, sales tax or excise duty and income tax, a waiver of the entire amount of penalty and default surcharge was allowed by the Board. The FBR has also allowed partial exemption of past liabilities of sales tax and federal excise duty through exemption of penalties and default surcharge. The FBR has also allowed exemption from the FED on the goods manufactured in KP and tribal areas.
The Board had also extended fiscal relief package for the businessmen and investors operating in Nowshera for 50 percent exemption of sales tax and federal excise duty (FED) on goods produced and supplied in the said affected area. According to sources, this kind of special tax treatment to one province has created distortions between the markets of one province and business centers in others.
Secondly, such kind of tax concessions to one province is also primarily against the concept of Value Added Tax (VAT). Under the VAT regime, it is legally not feasible to give special tax treatment to one city as compared to application of standard VAT rates for other cities, creating distortions and discriminations among the businesses of the same sector.
The fiscal relief package for one specific province has created disadvantages for the business units and manufacturers in other provinces. Practically, the business persons in other provinces are facing disadvantages due to lower tax rates in KPK with different kinds of exemptions and concessions. Therefore, it is very important to implement a national tax system across the country on a uniform basis without discriminatory treatment to business units.
The government had exempted sales tax leviable on supply of electricity by Peshawar Electric Supply Company or any other duly registered Electric Supply Company to manufacturing units (having industrial connections) whether registered or not, located in districts of Hangu, Bannu, Tank, Kohat, Chitral, Charsadda, Peshawar, Dera Ismael Khan, Batagram, Lakki Marwat, Sawabi and Mardan. Under the package, the government had exempted whole of the amount of default surcharge and penalties payable by a registered person located in districts of Hangu, Bannu, Tank, Kohat, Chitral, Charsadda, Peshawar, Dera Ismael Khan, Batagram, Lakki Marwat, Sawabi and Mardan against whom an amount of sales tax or federal excise duty is outstanding.
The exemption of the FED is applicable on goods produced or services rendered in districts of Hangu, Bannu, Tank, Kohat and Chitral. The additional duties and penalties are not applicable on the registered persons of Agencies of Bajaur, Mohmand, Khyber, Orakzai, Kurrum, North Waziristan and South Waziristan against whom an amount of central excise duty is outstanding.