When the sales tax zero-rating was revised for five export oriented sectors in last budget, the textile sector had committed that the amount of refunds would be reduced due to zero-rating and they would not claim refunds on packing material. Contrary to this, the volume of sales tax refunds has not been reduced in the five export oriented sectors. At the same time, some units are claiming sales tax refunds on packing material, which is also not admissible. After zero-rating regime notified in last budget, the amount of refunds in five export oriented sectors was required to be reduced. The FBR had extended zero rate facility to entire supply chain of the export sectors up till, retail stage, but the refunds have not been reduced. This has not happened and now the Board would verify the authenticity of each RPO issued to the units (after July 1, 2016) operating under the five export oriented sectors. The RPOs would be reprocessed and verified under the new exercise to be carried out by the field formations, sources said.
Sources said that the FBR has also issued instructions to the field formations to rollback all sales tax refund payment orders (RPOs) issued to the five export oriented sectors ie textile, leather, carpets, surgical and sports goods.
The FBR has asked the field formations to complete the exercise by April 30, 2017, sources added. Under SRO No 491, the FBR had issued revised sales tax zero-rating regime for five export oriented sectors ie textile, leather, carpets, surgical and sports goods from July 1, 2016 under which 5 per cent sales tax is chargeable on supplies of locally made finished article of textile and leather including finished fabrics to retailers or any other category of persons.
The FBR had revamped reduced sales tax rate regime for five export oriented sectors in accordance with the commitment made in finance bill by the finance minister. The main feature of the scheme is extending zero rate facility to entire supply chain of the export sectors up till, retail stage to eliminate accrual of sales tax refund at maximum extent. Under the new regime it was attempted to ensure levy of sales tax at the rate of reduced rate of 5% only at retail stage or supplies to end consumers. Attempt is also made to ensure collection of standard rate of sales tax ie 17% from persons outside five sectors.
The significant feature of the scheme under SRO No 491(I)/2016 was zero-rating facility is extended on imports to both manufacturer and commercial importers for import and supplies of industrial raw material (128) listed in table-1. Earlier there was different treatment of tax on these two categories, which was causing problems to genuine commercial importers.
Zero-rating facility was extended on local supplies of industrial raw material (128) listed in table-1 (excluding finished fabric). The facility is available to both registered and unregistered person operative within five sectors. Zero-rating facility on import and supplies of industrial raw material (128) listed in table-1 is also extended to registered manufacturers who manufacture goods listed at table-I or table-II, the sources explained.
Zero-rating facility was also extended on processing of goods owned by other person. Zero-rating facility on supplies of finished fabric is restricted to the extent of registered manufacturer only. Supplies to other categories are chargeable to sales tax at 5%.
Reduced rate of sales tax at the rate of 5% is chargeable on supplies of locally made finished article of textile and leather including finished fabrics to retailers or any other category of persons, an expert said. Standard rate of sales tax, 17%, remains intact on import of finished textile and leather article along with value addition sales tax @ 2%. The subsequent supplies of these goods are also chargeable at the rate of 17%. Provision for zero rate on purchase and supply of furnace oil, diesel and coal to the registered manufacturer is also provided subject to issuance of general order by the board.
Copyright Business Recorder, 2017