Sources told Business Recorder on Friday that the ship breakers and FBR Chairman Ali Arshad Hakim convened a meeting at the FBR House. Ship breaking industry pleaded their case that no withholding tax is applicable as tax is charged at import stage and when the imported goods are sold in the same condition as imported, no further tax is to be charged according to the provisions of Section 153(5)(a) of Income Tax Ordinance 2001. The industry also presented its legal and technical viewpoint to the tax authorities for consideration.
Tax officials informed the ship breakers that the supplies/sales of ship breakers are liable to withholding of tax under Section 153 of the Income Tax Ordinance 2001. The industry has been engaged in local sale of ship plates to re-rolling mills, which is subjected to 3.5 percent withholding tax. Thus, ship breakers have to pay one percent withholding tax at the import stage and 3.5 percent on local supply, ie, 4.5 percent. However, the industry is only paying one percent tax as compared to 4.5 percent tax.
The law is very clear on the issue which needs to be enforced retrospectively, sources maintained. On the other hand, steel industry is also supplying ingots and billets to the re-rolling mills and paying applicable taxes. Both the ship plates and items supplied by steel units have been used for same purpose by re-rolling mills.
Ship breakers have undue advantage due to non-payment of 3.5 percent withholding tax on supply of ship plates as compared to steel industry. Ship breakers have low-cost of production when compared with steel units as steel industry is using electricity as their major input. Payment of proper taxes by ship breakers would create a fair competition in the country.
Referring to Section 153 (payment for goods, services and contracts) of the Income Tax Ordinance, sources said the above section would not apply to sale of goods where the sale is made by importer of the goods and taxed under Section 148 of the Income Tax Ordinance 2001 in respect of such goods has been paid and the goods are sold in the same condition as they were when imported. In case of ship breaking industry, as the plates sold after ship breaking are not in the same form as import, the viewpoint of the industry is not correct under Section 153 of the Income Tax Ordinance 2001. One of the options is to exempt past tax liabilities in case the Ministry of Finance as well as FBR agree to the same, sources added.