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  • Mar 3rd, 2017
  • Comments Off on FBR to charge reduced rate of five percent GST on carpets
The Federal Board of Revenue (FBR) will charge reduced rate of 5 percent sales tax on retail/local sales/supplies of carpets including synthetic carpets. In this regard, the FBR has issued instructions to all Chief Commissioners of the Large Taxpayer Units (LTUS) and Regional Tax Offices (RTOs) here Thursday. Sources said that the Carpets Manufacturers'' Association had contested the erroneous clarification before the FBR and high court.

The FBR through its clarification addressed to Pakistan Machine Made Carpets Manufacturer Association in suppression of its earlier clarification dated 24.11.2016 has clarified that retail/local sale/supplies of carpets including synthetic carpets are chargeable to sales tax at the rate of 5 percent. According to the FBR clarification, in supersession of Board''s clarification issued vide C No 4(1)ST&EE/Misc/2016-147096-R dated 24th November, 2016, it is hereby clarified that retail/local sales/supplies of carpets including synthetic carpets are chargeable to sale tax at the rate of 5%. However, any registered person shall not be entitled to any refund of sales tax incidence of which has been passed on to the consumers as provided under section 3B of the Sales Tax Act, 1990, the FBR clarification added.

Earlier, one of the carpet manufacturers Olympia Industries Pvt Ltd had pointed out to the FBR that in the budget speech of the finance minister for the financial year 2016-17, it was announced that the retail sale of locally manufactured finished goods of five main sectors will be subjected to sales tax at the rate of 5%. It was pointed out that through amending SRO 491(I)/2016 dated 30.06.2016, the requisite amendments were not made in SRO 1125(I)/2011 with the result that local supplies of only textile and leather were given the reduced rate of 5% instead of standard rate of 17%. It was highlighted that though carpets fall under the category of textile and its PCT Heading of Chapter 57 was mentioned at Sr No 2 of Table I of the SRO 1125(I)/2011 and separate Sr No 3 for carpets was superfluous.

However, request of the carpet manufacturer for suitable clarification or rectification of SRO was rejected by the FBR and instead clarification dated 24.11.2016 was issued stating that Sr No3 of Table I of the SRO 1125(I)/2011 excludes the carpet sector from the textile, as a separate Sr No 3 of Table II explicitly relates to textile and leather articles and made ups except these two sectors, no other sector among five zero rated sectors is included in the said serial and therefore sales tax at the rate of 17% is required to be charged on local supplies of synthetic machine made carpets instead of 5%.

After the FBR clarification dated 24.11.2016, show cause notices were issued to the carpet manufacturers for payment of sales tax at the rate of 17% on local supplies w.e.f. 01.07.2016. On that Carpet Manufacturers Association filed a writ petition (No 1057 of 2017) before the Lahore High Court and the court allowed interim relief on the show cause notice.

On taking matter to the high court, the FBR reviewed the issue and in suppression of its earlier clarification dated 24.11.2016 has issued fresh clarification accepting the contention of the association that rate of sales tax on local supplies of carpet is 5 percent. The clarification further states that the registered person shall not be entitled to any refund of sales tax, incidence of which has been passed on to the consumer as provided under section 3B of the Sales Tax Act, 1990. When contacted, Shahid Jami Advocate through whose firm the association had filed the writ petition and representation to the FBR, observed that it is classic manifestation of the bad drafting of SROs by the board/federal government and burden of the error of the drafting has to be borne by the taxpayers and the consumers.



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