In this connection, the FBR has amended SRO 575(I)/2066 through SRO.448(I)/2011 issued here on Saturday. According to SRO.448(I)/2011 dated May 21, sales tax exemption would not be applicable on the import of machinery, equipment and other capital goods imported by industrial undertakings and commercial importers.
Sources told Business Recorder that a major tax dispute arose following imposition of the 17 percent sales tax on the import of plant, machinery and equipment through sales tax SRO.230(I)/2011, as the sales tax exemption was available on the import of plant/machinery under the customs notification ie SRO.575(I)/2006. Apparently, the FBR had forgotten to abolish sales tax exemption available on the import of machinery and equipment under serial number 21 and 23 of the customs SRO.575(I)/2006.
Resultantly, the sales tax exemption was applicable on the import of machinery and equipment under SRO.575(I)/2006 despite imposition of 17 sales tax on the same items through the sales tax notification. Since March 15 2011, the importers were legally allowed to import sales tax free machinery/equipment even 17 percent sales tax was imposed through a sales tax SRO.230(I)/2011. This facility was available for the last 1-2 months for the importers to import exempted machinery under the customs notification.
Due to the above said position, the FBR has given different treatment of sales tax on machinery/equipment through sales tax SRO.230(I)/2011 and customs SRO.575(I)/2006, which resulted in ambiguity. Now, the amendment in the SRO.575(I)/2006 has removed this ambiguity as sales tax has also been imposed on the import of machinery/equipment under the customs notification. A uniform treatment of sales tax has been given under sales tax as well as customs notification which has ended a dispute on the applicability of sales tax on the import of plant and machinery, sources added.
Previously, the SRO.575(I)/2006 allowed exemption of customs duty and sales tax on the import of plant, machinery, equipment and apparatus, including capital goods falling under the 'HS Codes' specified in notification. This is a conditional exemption of duties and taxes available to specific sectors and projects as specified in the SRO.575(I)/2006.
Legally, the importers were entitled to import machinery/equipment without payment of sales tax under the SRO.575(I)/2006. Prior to amendment in SRO.575(I)/2006 dated May 21 2011, sales tax exemption was available on the import of machinery and equipment imported by importers under serial numbers 21 and 23 of the said notification. Under the same customs notification, certain kinds of machinery/equipment as per Chapters 84 and 85 of the Pakistan Customs Tariff (PCT) heading were also exempted from sales tax.
The facility of zero-rating on plant, machinery and equipment including parts thereof was withdrawn by amending SRO 549(I)/2008, dated June 11, 2008 through notification SRO No 230(I)/2011, dated 15.03.2011. These goods will now be liable for sales tax at the rate of 17 percent. At the same time, SRO.575(I)/2008 issued by the customs department has already allowed the sales tax exemption on the import of a wide range of items for different industries and sectors.
Due to this confusion, the importers were eligible to avail exemption of sales tax on the import of plant, machinery and equipment under SRO.575(I)/2006 despite the fact that the same machinery and equipment has now been subjected to standard rate of 17 percent sales tax under the SRO.230(I)/2011.
The FBR has worked out revenue impact of Rs 8 billion following imposition of the 17 percent sales tax on the import of machinery/equipment etc. Following imposition of 17 percent sales tax on the import of plant, machinery and equipment under customs SRO.575(I)/2006, the importers cannot use customs notification for availing sales tax exemption on such imports.