Despite having directives from ministry of finance, the Federal Board of Revenue (FBR) has so far appears toothless to recover Federal Excise Duty (FED) amounting to around Rs 583 million from cosmetics manufacturers, it was learnt here on Tuesday. According to sources, the Directorate of Intelligence and Investigation (DI&I), Karachi on the directives of Federal Tax Ombudsman (FTO) had raised a demand of around Rs 583 million against seven cosmetics manufacturers for the period July 2007 to June 2012 and communicated the case to Regional Tax Office (RTO)-II.
Instead of taking action on DI&me report, the RTO-II contested the case and termed it as incorrect. The RTO-II was of the view that these units were not required to pay FED as they instead of manufacturing goods by themselves had entered into an arrangement with another entity having its factory located at Mingora, Swat. These units only distribute these goods, manufactured in tax-free area, in tariff area. Therefore, these units are not liable to pay FED in pursuance of SRO 200(I)/2011 dated March 14, 2011.
However, the DI&I rebutted the contention of the RTO-II and termed it as contrary to facts and misleading. The DI&I was of the view that agreement between the FBR and group of cosmetics manufacturers and toiletries, Mingora related to tax period 2006-2007 whereas the non-payment of FED was for the tax years from 2007 to 2012. The issue was brought in light by Moin Aziz Mirza, M.A Mirza & Associates at FTO office Islamabad. The ministry of finance on the complaint of Mirza had also directed chairman FBR to take further necessary action in this case but the board after the lapse of almost five months was unable to resolve the issue for the reason known to the FBR.
The complaint filed by the Mirza in FTO, office alleged that some unscrupulous elements had exploited agreement signed between FBR and a group of cosmetic manufacturers and getting windfall by charging FED from consumers on various items including soap and cosmetics at the prescribed rate. However, these units only pay taxes on fixed-amount basis, which is much less than amount realised from the consumers.
The complaint said that this cosmetics mafia, which was involved in giving financial shocks of Rs 400 million, approximately, to the national kitty per annum, had been doing this illicit activity for the last 14 years with the connivance of tax officials. In early 90s, the revenue generated from these units in the absence of 'agreement' was about Rs 200 million, however, the FBR after agreement had only collected Rs 130 million in 24 equal instalments in a year in FY07, the compliant said. For the last few years, this surplus or difference has been camouflaged as license fee, royalty, etc. The complaint said that arrangement of 'agreed' FED was only for 16 units but many more companies were being benefited.