The Federal Board of Revenue (FBR) is suffering revenue loss of billions of rupees per year following increased quantity of commercial imports of palm oil under the garb of industrial import to avoid payment of 5 percent withholding tax by importers-cum-manufactures selling edible oil in the open market.
Sources told Business Recorder here on Sunday that the sudden jump in the quantity of imported edible oil prompted Customs authorities to check massive evasion of withholding tax and warehousing surcharge by importers-cum-manufactures of edible oil, who are paying lower rate of 3 percent withholding tax at the import stage, but selling this raw material of ghee/cooking oil in local market, causing loss to the tune of billions of rupees.
Sources stated that the issue came to the light when customs authorities at Port Qasim detected a leading manufacturer of ghee and cooking oil, who imported palm oil with significant increase in its quantity during year 2012. The importer-cum- manufacturer imported raw material at lower rate of 3 percent withholding tax instead of 5 percent applicable on commercial import of edible oil. Instead of consuming palm oil in direct manufacturing activity, the unit has sold the raw material in the open market causing loss of billions of rupees on yearly basis to the national exchequer.
There is a major jump in the industrial import quantity of the palm oil during the last three years reflecting some thing wrong at the import stage. The production/manufacturing capacity of the unit is not in line with the huge quantity of palm oil imported, pointing towards immediate verification of the records to check whether palm oil imported at lower rate of withholding tax has been consumed in manufacturing of ghee and cooking oil of the concerned importer-cum-manufacturer.
It has been estimated that the FBR suffered loss of billions of rupees on yearly basis on account of wrong declarations made by certain importers-cum-manufactures on the import of palm oil. The tax authorities have confirmed that the Inland Revenue Department has no mechanism in place to check the consumption of palm oil imported at lower rate of withholding tax.
It has been found that the unit paid lower rate of 3 percent withholding tax on the import of palm oil instead of standard rate of 5 percent at the import stage by commercial importer. The concessionary rate has been applicable in cases of imports made by importers-cum-manufacturers as compared to 5 percent standard rate of withholding tax applicable on the import of palm oil by commercial importer. In the absence of monitoring system, some importers-cum-manufactures misused the facility by selling the raw material in the open market.
Keeping in view seriousness of the case, the Model Customs Collectorate, Port Qasim, is currently carrying out a sectoral analysis of the import of edible oils by various ghee manufacturers of the country. The objective of the analysis is to ascertain the co-relation between the quantitative increase in import of edible oils, especially RBD Palm Oil in recent months, and the actual manufacturing capacity of the importer-cum-manufacturers.
While there are no quantitative restrictions on the import of edible oils by importer-cum-manufacturers, such imports are subject to reduced rate of Withholding Tax @ 3 percent, as compared to the standard rate of 5 percent. It is understood that some importers-cum-manufacturers may simply not be utilising the entire imported quantity of RBD Palm Oil for manufacturing purposes, but also be trading it in its original imported condition. It is not possible for the Collectorate to foresee the post-importation disposal of the imported edible oils, till it acquires firm knowledge and information on the processing/refining capacity of each ghee manufacturer.
Accordingly, a manufacturing unit has been selected for detailed analysis, to find out their exact manufacturing capacity vis-à-vis imports of edible oils by them.
Port Qasim Collectorate has requested the Input Output Coefficient Organisation (IOCO) Karachi to determine the input-output co-relation between the import of all types of edible oils by the above mentioned manufacturer and its actual production capacity. The report by IOCO may, inter-alia, highlight the aspect under scrutiny. Port Qasim Collectorate has also requested to ascertain the details of plant and machinery of the importer-cum-manufacturer, including its specifications as contained in the supplier's catalogue; shift-wise production capacity; and any other relevant details/findings during the course of analysis by IOCO.
It has also been observed by the Collectorate that goods are being declared at an under invoiced values and transactional values. This is mere contravention of the prevalent rules, regulations and legislature. In order to curb the under invoicing, the past practice of only accepting PVMA certified invoices may be continued henceforth, suggested the Collectorate to FBR.
Port Qasim Collectorate says that the commercial imports are being made in the garb of industrial imports so as to avoid payment of 5 percent withholding tax. This case is one of the biggest example; in order to curb the same, a mechanism for verification is needed as to whether the imported goods are bonafide industrial imports or otherwise, a security for the differential amount of taxes between 5 percent and 3 percent may be taken at bond/ex bond stage and the same shall be discharged upon specific confirmation from the concerned association that the imported goods have duly been physically taken in the premises and processed in conformity of the industrial undertaking by the industrial concern and the industrial unit has sufficient in house manufacturing/processing facility and their quantum of imports co-relates with their manufacturing/processing capabilities/ capacity. The security shall only be released on certification on the delivery challan by PVMA along with relevant documents.
It is also observed that Pakistan Standard and Quality Control Authority's (PSQCA) certificate is not provided in some cases. The same may be taken invariably, where required and clearance may not be allowed until and unless the same is issued by the concerned authority.
The confirmation of receipt of goods meant for Safe Transportation to the other customs destinations may be observed minutely in order to curb the en-route pilferage/theft etc. In this regard besides confirmation from concern customs station, PVMA may also be requested to issue a certificate on case to case basis confirming that the cargo has safely been bonded at the destination, Collectorate suggested.
The Collectorate has also recommended installation of tracker on each out bound vehicle carrying edible oil for monitoring of their movement as to whether the same is going directly to the manufacturers/industrial concern premises or going to the other places. The staff or relevant mechanism may be posted at factory premises so as to check and confirm that all imported materials are coming in for processing or otherwise.
Details of the case revealed that Port Qasim Collectorate carried out the post-import audit of a unit to ascertain whether the unit is involved in importing and then selling same goods ie edible oil without doing any manufacturing process and without paying corresponding rate of withholding tax applicable for commercial importers. In this regards the undertaking was requested to provide information to the Collectorate. The unit imported 1,000, 300 and 500 metric tons in years 2009, 2010 and 2011, respectively, whereas in year 2012 alone, it imported around 52,500 metric tons of edible oil. On the basis of sudden enormous increase in imports, the Collectorate initiated the inquiry.
Neither the industrial undertaking provided the requisite information nor did the concerned association supply any production data or technical assistance. On the basis of production statistics provided by PSQCA and information received from Inland Revenue department, the Collectorate is conducting the inquiry. The MCC Port Qasim is also gathering information and compiling a profile of some more manufacturing units, which are following the same practice and evading taxes. The Collectorate has also approached the Input Output Co-efficient Organisation (IOCO) for technical assistance to determine the production capacity of the subject unit. The Collectorate may ask for differential amount of pay orders/post dated cheques and shall release the same after obtaining verification. In this regard a summary has been prepared and pending till necessary input is received from PVMA.
It has been observed that goods are being imported at an under invoiced values and transactional values in conformity of the Section 25 of the Customs Act, 1969 are not being declared by various importers. This is mere contravention of the prevalent rules, regulations and legislature. In order to curb the under invoicing, the past practice of only accepting PVMA certified invoices may be continued henceforth, Port Qasim Collectorate suggested.
Earlier, on the basis of credible information, Port Qasim MCC found that the oil mill is involved in importing and then selling same state goods ie edible oil without doing any manufacturing process and without paying corresponding rate of withholding tax applicable on commercial importers. In order to avail reduced rate of withholding tax on imports, an importer is required to be an Industrial Undertaking as defined under section 2(29C) of Income Tax Ordinance, 2001 along with bearing reduced rate certificate. In this backdrop, the collectorate directed the unit to substantiate business status and provide information including NTN and Sales Tax Registration Certificate, Copies of income tax and sales tax returns for the last three years, types of manufacturing processes being executed in the manufacturing facility, commodities/raw materials imported during last three years and their quantity, commodities/raw materials purchased from local market during last three years and their quantity, detail of commodities manufactured in the factory during last three years and their quantity, number and type of machinery installed along with details of production capacity in terms of per hour production and corresponding energy consumption, nature of fuel/energy being used for running the machinery ie gas or electricity, summary of utility bills of electricity/gas for the last three years, proportionate consumption of all kinds of raw materials in per unit production of finished goods, percentage of wastage and value addition during the manufacturing process, number of employees working in the unit during the manufacturing process, generators description, fuel consumption and details of tax payment to the provincial Government for electricity generation through generators.
Sheikh Amjad Rasheed, Ex Chairman PVMA, reiterated that PVMA will not support any of its member unit involved in tax evasion during his visit to Port Qasim Collectorate. He condemned the non-co-operative attitude of the unit and filing of law suit in the court. He also apologised for non-co-operation of PVMA and assured his personal and association's full assistance in future.
So far, the PVMA has not sent its consent on the issues verbally approved by its Ex Chairman. However, leading manufacturers of ghee and cooking oil led by Khowaja Arif Qasim, Chairman PVMA, recently visited FBR House and discussed relevant issue of misuse of withholding tax regime at import stage with FBR Member Customs, they added.