However, the AJK tax authorities have serious reservations over the FBR proposal to collect customs duty at the proposed dry-port in Mirpur, AJK. According to the AJK officials, it is not possible to permit a federal government agency to operate in the Azad State of Jammu and Kashmir under the present constitutional set up. Therefore, the revenue to be collected at the proposed dry-port should form a part of AJK council's treasury, to avoid any legal complications.
Sources told Business Recorder on Sunday that the FBR had rejected a proposal of Azad Kashmir for granting 10 years exemption for the entrance of goods from AJK to Pakistan which would seriously hurt the manufacturing units established in Pakistan.
Sources said, "Due to peculiar political status of Azad Kashmir, Pakistan has no agreement on Avoidance of Double Taxation with AJK. Income Tax Ordinance 2001, however, provides for Unilateral Tax Relief under section 103 of the Income Tax Ordinance 2001. Double taxation with the AJK government is avoided through circulars and clarification letters issued by the FBR from time to time."
Sources said the government of AJK had adopted Income Tax Ordinance, 2001 and all notifications, circulars and rules made under this ordinance were equally applicable in AJK. "For instance, contents of circular No 6 of 2002, which deals with tax credit for withholding taxes, have been further clarified for the benefit of AJK's taxpayers through Circular No 1 of 2003. Thus double taxation issues related to AJK have always been resolved smoothly through the above procedure."
As far as issues of sales tax and federal excise were concerned, import of plant, machinery and equipment was already zero-rated for the purpose of sales tax vide SRO 549(I)/2008.
The AJK had its own Sales Tax and Federal Excise Act and the request for 10 years exemption might be considered by concerned authorities. However, such exemption for entrance of goods to/from AJK to/from Pakistan might not be supported as it would jeopardise the operations of units established in Pakistan. The FBR would take up the issue with concerned authorities in AJK.
With the establishment of a dry-port at Mirpur, sources said the FBR had asked the AJK to make necessary legal amendments in the AJK Constitution, authorising the extension of the Customs Act, 1969, the Sales Tax Act, 1990, as well as, the Federal Excise Act, 2005 to the Azad Jammu & Kashmir, so as to avoid the, possibility of unauthorised transportation of the raw material imported in the name of AJK based industries to Pakistan, as there was free traffic flow between the two territories.
The Federal Board of Revenue, Islamabad, shall be authorised to collect customs duty and other levies chargeable on imports/exports made through the proposed dry-port at Mirpur, AJK, in order to ensure proper application of tariff and Customs laws/procedures, the FBR proposed.
The FBR had also proposed that the dry port at Mirpur, AJK, might be made a part of MCC, Rawalpindi, and accordingly be managed and manned by the officers/staff of the Model Customs Collectorate, Rawalpindi.
On the other hand, AJK officials had reservations about the proposal that FBR should be authorised for collection of duty/taxes at the proposed dry-port as under the present Constitutional set up, it was not possible /permissible to allow a Federal Government agency to operate in the Azad Stale of Jammu and Kashmir. Therefore, the revenue to be collected at the proposed dry-port should form a part of AJK Council's treasury, to avoid any legal complications.
However, a number of federal government institutions like State Bank of Pakistan, PTCL, Wapda, Pakistan based telecom companies etc, were operating in AJK.
Sources said the FBR had supported the establishment of a dry port at Mirpur provided recommendations were implemented by the AJK government. The AJK Council Secretariat was accordingly requested to take up the matter with AJK government to pursue necessary legal amendments in AJK Constitution so that dry port at Mirpur was established.
However, the FBR had linked the operations of the new dry port with certain new conditions. Firstly, legal changes were necessary to avoid unauthorised transportation of the inputs/raw material imported in the name of AJK based industries to Pakistan. Secondly, FBR officials should be empowered to collect customs duty on the imports/exports through the proposed dry-port at Mirpur.