Plant, machinery import:

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Federal Board of Revenue Chairman Salman Siddiq said on Thursday that the FBR will issue a statutory regulatory order (SRO) after approval of the Finance Bill (2011-12) to allow sales tax refund to the registered undertakings engaged in import of plant, machinery and equipment in 30 days. During the review of the Finance Bill (2011-12), the FBR Chairman informed the Senate Standing Committee on Finance that the tax exemptions of sales tax and federal excise duty and other tax incentives under the fiscal relief package granted to the local investors in the Khyber Pakhtunkhwa and Tribal Areas would not continue beyond the prescribed time period. Salman said that the registered units would be given benefit by ensuring payment of sales tax refund within 30 days period on the import of plant and machinery. In case of non-payment of refund, the FBR would be legally bond to pay compensation on delayed payment of sales tax refund, the FBR Chairman added. Responding to a question, FBR Chairman said that the fiscal relief package granted to the business community in the Khyber Pakhtunkhwa and Tribal Areas is already creating distortions in the tax system and any further extension of the tax incentive package is not possible. During the review of the Finance Bill (2011-12), FBR Chairman informed the Senate Standing Committee on Finance that the fiscal relief package for KPK cannot be further extended beyond fiscal 2012-2013. The tax concessions and incentives to the KPK have already created distortions in the existing tax system. The issue came to the light when a committee member proposed further extension in the tax incentive package for the KPK. Responding to the proposal, FBR Chairman said that the government has announced the fiscal relief package for the war-effected areas of the KPK in the consultation with the concerned provincial government. The areas were divided into three different categories included most effected areas, moderately affected areas and least affected areas. The package is applicable for three years period. The proposal of any extension of package would be considered at the time of expiry of the special incentives granted to the KP. Most Affected Areas covers Bajaur Agency, Mohmand Agency, Khyber Agency, Orakzai Agency, Kurrum Agency, North Waziristan Agency and South Waziristan Agency, Malakand Agency, District Swat, District Buner, District Shangla, District Upper Dir; & District Lower Dir, District Hangu, District Bannu and District Tank. Moderately Affected Areas covers District Kohat, District Charsadda, District Peshawar, District D I Khan, District Batgram, Lakki Marwat, Swabi and Mardan. To another query, Salman Siddiqui clarified that the FBR do not take policy decisions for the imposition of taxes, but it is the revenue collection agency. The task of the tax machinery is to collect taxes, but not to impose taxes. Senator Syeda Sughra Imam endorsed viewpoint of the FBR Chairman that the Parliament is the competent authority for approval of taxation measures. During the committee proceedings, FBR Chairman observed that a maximum of up to 60 percent depreciation is available on the import of old and used vehicles under the gift, baggage and transfer of residence schemes. The decision was taken by the Economic Co-ordination Committee (ECC) of the Cabinet about two months back. When Senator Talha Mahmood asked whether increase in the rate of deprecation would suddenly increase imports of old and used cars in the country, a Chief Customs FBR explained that the facility of depreciation is not applicable on the commercial import of vehicles. It is a specific scheme notified for the overseas Pakistanis, who wanted to bring used vehicles under the gift, baggage or TR scheme. It is not a duty free import of vehicles but specified rates of customs duty is applicable as per relevant FBR notification. The change in duty structure on the vehicles is a policy matter and Engineering Development Board and Ministry of Commerce and Ministry of Industries and Production are also involved in the process of finalisation of the tax policy and deletion program of the auto sector. Salman Siddiq further stated that it is the policy of the government to end the sales tax exemptions and zero-rating regimes in a gradual manner. In this regard, the FBR has withdrawn certain exemptions and zero-rating in March 2011 and other exemptions in the Sixth Schedule of the Sales Tax Act 1990 have been withdrawn in budget (2011-12). In a systematic manner all sales tax exemptions would be abolished with gradual phasing out of the Federal Excise Duty (FED). About the misuse of the Duty and Taxes Remission of Export (DTRE) scheme, the FBR Chairman said that a procedure needs to be prescribed for those who avail the tax remission scheme. Highlighting an important issue of the Finance Bill (2011-12), Salman said that all regulatory authorities should be required to pay income tax on their entire income from fees charges and penalties and than would be required to deposit this amount in Federal Consolidated Fund. The Finance Bill has introduced an amendment seeking making legally bound all regulatory authorities to deposit their surplus fund in federal consolidated fund and get approved budget from Ministry of Finance. It has not mentioned deduction of income tax from surplus money of the regulatory authorities before depositing of this amount in Federal Consolidated Fund in the finance bill. On the request of the FBR, the Senate Standing Committee on Finance approved an amendment in finance bill 2011 seeking deduction of income tax on income by the regulatory before depositing the amount of their fees charges and penalties in the federal consolidated fund. Salman requested the committee that a further clarification be made in the proposed amendment introduced in the Finance Bill. He was of the view that all regulatory authorities like SECP, PTA, Ogra, CCP, Pemra and PNRA should be bound by law to deduct income tax from their income from fees charges and penalties before depositing the surplus amount in the Federal Consolidated Fund. Explaining the need for this further amendment, the FBR Chairman informed that if the word after deduction of income tax was not included in the proposed amendment, there are chances that regulatory authorities might approach courts against the deduction of income tax. The federal law doesn t allow any income tax exemption to any of the regulatory authorities and by virtue of this law they should be legally bound to deduct income tax and than deposit their surplus funds in Federal Consolidated Fund. Committee Chairman Senator Ahmed Ali and other members agreed with the viewpoint of the FBR and committee unanimously approved the amendment in finance bill 2011. The FBR Chairman also assured the committee that it would examine the proposal of Tax Compliance Cards for the persistent compliant taxpayers and Tax Privileges Cards to provide the good taxpayers respect and honour in many public-dealing offices. Responding to a request from the Senator Talha Mehmood to increase the customs duty on the import of batteries used by the industrial sector and telecommunication companies, FBR Chairman categorically informed the committee that federal government has decided not to increase customs duty on any product and tariff rationalisation plan under consideration before the government is aiming at reduction in duties in phases for all productive sector. However, Member Customs assured Senator Talha Mehmood that misuse of the tariff structure on batteries would be eliminated through administrative measures and if such types of batteries are being manufactured locally than the tariff structure would be changed to provide protection to local industry in consultation with Engineering Development Board. The FBR Chairman said that it is reality that we are working under the Afghan Transit Trade Agreement of 1965, which is a very old agreement. Now, a new treaty would replace the old agreement between Pakistan and Afghanistan. The issue of replacement of insurance guarantee with the bank guarantees is on the table to be finalised between the two sides. During the meeting, FBR Member Strategic Planning and Statistics Mahmood Alam informed the committee that the ghee manufacturers pass on burden of excise duty to the end consumers. These manufacturers do not pay excise duty from their own pocket, but pass on the burden to the general public. There is no burden of excise duty on the manufactures. Therefore, the proposal of the Pakistan Vanaspati Manufacturers Association (PVMA) for reduction in excise duty cannot be accepted, FBR senior Member added. Chairman of the Senate Standing Committee on Finance Senator Ahmad Ali said that the proposal of the PVMA has been dropped in view of the legal justification submitted by the tax authorities on the issue.

Courtesy : Business Recorder

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