The textile industry is awaiting a notification of the applicability of a single rate of 5 percent sales tax on local supplies made to unregistered taxpayers of five export-oriented sectors--textile, leather, carpets, surgical and sports goods. Industry sources said that the Federal Board of Revenue (FBR) has incorporated changes in the relevant notification on the recommendations of the commercial importers.
The FBR has assured the textile sector that the notification would be issued in due course of time. Sources said that the FBR had committed to issuing a notification combining 4-6 percent sales tax rates into a single rate of 5 percent on local supplies of five zero-rated sectors.
The FBR has finalised the working on the draft notification in active consultation with the stakeholders, particularly representatives of zero-rated sectors. The reservations of the commercial importers have been addressed, sources maintain, and the issuance of the notification is awaited.
According to sources, the specified goods (usable as industrial inputs), covered under the revised notification, if imported by the registered manufacturers (including manufacturer-cum-exporters) of textile, carpets, leather, sports and surgical goods sectors, shall be exempt from sales tax. However, the goods imported by the registered commercial importers shall be charged sales tax @ 5 percent of the value.
On local manufacturing, purchase or supply side, the new notification shall be applicable in case of textile sector to apply from ginning stage onwards (for synthetic sector from production of polymer made of purified terephthalic (PTA) and MEG) and in case of other sectors, from the first organised manufacturing stage onwards.
Sources said that the supplies of these goods to registered persons up to wholesale stage shall be zero-rated. The supplies of these goods to retailers, both registered and unregistered, shall be charged to sales tax @ 5 percent of the value. Where a registered person has acquired goods at reduced rate of sales tax of 5 percent, he/she shall be entitled to input tax adjustment or, as the case may be, refund against subsequent supplies either at reduced rate or as the case may be, at zero rate.
A registered person, who has consumed any other input not covered in new notification but acquired on payment of sales tax, shall be entitled to input tax adjustment or as the case may be, refund in respect of the supplies made by him either at reduced rate or at zero rate.
The registered persons who are solely or otherwise engaged in the retail business of these goods or products shall pay sales tax at the reduced rate of 5 percent on their retail sales and shall be entitled to input tax adjustment or as the case may be, refund against such sales tax and shall not be required to pay any other upfront sales tax on such retail transactions.
In the case of registered manufacturer-cum-retailers, if the amount of claimable refund exceeds the amount of tax payable by a registered person availing new notification he/she may subtract the tax liability from his refundable amount and claim refund of the balance amount, if any.