Colossal loss of revenue expected

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Best of intentions go awry sometimes. Federal Board of Revenue's (FBR's) intention may not be so, but its stand and the clarification issued against the explicit provisions of Income Tax Ordinance, 2001 would cause colossal loss of revenue to the national exchequer. The issue involved is: putting "manufacturers" in the category of "industrial undertakings" and collecting tax from them @ 3 percent on the import value of raw material as allowed to the industrial undertakings for importing raw material for its own use. The question of collection of advance tax under section 148 of Income Tax Ordinance 2001 was raised by Chief Commissioner, Inland Revenue, Malik Ahmed Samad, in his letter sent to the FBR on December 20, 2011. In response, Secretary (Withholding Tax), Revenue Division, FBR, Dr Aftab Imam, on December 28, 2011 conveyed following clarification:

----- The manufacturers have been allowed to import raw material at the reduced rate of 3 percent on the value of imported goods, under clause (9A) of part I of the second schedule to the Income Tax Ordinance 2001 and are not required to obtain any lower rate certificate under section 159 of the Ordinance.

----- The defaulted amount may be recovered by the IR field formation engaged in monitoring of withholding tax.

----- Obtain data from customs authorities pertaining to manufacturers who have been allowed to obtain raw material for own consumption at the lower rate of 3 percent of the value of imported goods and ascertain whether the imported raw material matches their utilisation capacity or not. This will also verify the veracity of their claim that they are indeed manufacturers. Cases pertaining to other RTOs may be forwarded to them for appropriate action at their end, and

----- Importers who have availed exemption on the basis of bogus certificate have committed fraud. In addition to recovery of the defaulted amount their cases may be forwarded to FIA for appropriate action.

He also requested that fortnightly reports of outcome of the supra-mentioned steps may be sent to him. These developments forced Commissioner, Inland Revenue, Mushtaqe Hussain Qazi, to write a letter to the Chairman, FBR, through proper channel, expressing that he was "constrained in the national interest to apprise you of the colossal loss of revenue caused to the national exchequer due to the very clarification which may run in billions of rupees. Detailed facts were mentioned as below:

----- Part II of first schedule to the Income Tax Ordinance, 2001 had fixed the rate of advance tax @ 5 percent to be collected by the collector of customs under section 148 of the ordinance on the value of goods.

----- Part II of second schedule to the Income Tax Ordinance, 2001 relating to the reduction in tax rates stipulates vide clause (9A) that the tax under section 148 of the ordinance shall be collected @ 3 percent on the import value of raw material imported by an industrial undertaking for its own use.

----- Section 159 (1) of the ordinance contemplates that in case tax to be collected is subject to rate lower than the specified in the first schedule, the commissioner, on application by the person issue him with the lower rate certificate.

Contrary to the above explicit provision of Income Tax Ordinance, 2001, the Board has issued the letter by virtue of which now every manufacturer, instead of industrial undertaking and that too without any lower rate certificate required under section 159 of the ordinance, is allowed illegal reduction of rate of 2 percent.

The letter issued by the Board in utter disregard of substantive law and without any powers, has now allowed the illegal facility/concession of reduction of 2 percent in the rate of tax to all the manufacturers to import raw material and without any lower rate certificate by the Commissioner of Inland Revenue opening the flood gate of loss of billions of rupees to the government exchequer.

"Before the cognisance of this grim illegality is taken to a higher forum or by the Apex Court, you are, therefore, requested to kindly look into the matter personally and instruct the withdrawal of the letter forthwith to avoid any further loss to the national exchequer and take those to task who are responsible for the issuance of these illegal instructions and ensure that they are not left scot-free." Copies of the letter have been sent to: Secretary, Finance Division, Government of Pakistan, Islamabad, and Member Inland Revenue, Federal Board of Revenue, Islamabad.

Courtesy: Business Recorder

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