LAHORE: Azad Jammu & Kashmir (AJK) industry has expressed serious concern over withdrawal of tax exemptions by Federal Board of Revenue (FBR), terming it an act to decimate industrialisation in the state.
President of AJK government has convened a meeting with representatives of local industry for chalking out future line of action over deadlock between Azad Kashmir and federal government over the lingering issue.
Terming it a distress call from the dying industry of AJK, especially from Mirpur's earthquake affected area, the meeting urged to save the industry from closure, which might lead to unemployment on large scale.
Elaborating their case, they said, AJK had taken steps to attract investments and industrialisation, for which incentives such as exemption from sales tax and federal excise duty were given in 1995 for a period of five years to newly established industries.
The exemption was subject to condition that industries would have to pay sales tax and excise duty at the time of import/purchase of goods that would be collected by FBR and deposited in the government of Pakistan exchequer at import / purchase stage.
The quantum of exemption was only up to the tax impact on value-addition that ranges from 2.5 percent to 3.5 percent only. The industries would have to pay local taxes, education cess and withholding tax in AJK. Considering the topology of AJK area and roads condition this exemption remains at very low level.
However, now the FBR has issued a sales tax general order No 107 of 2019 dated November 21, 2019 and advised its field staff to locate and collect sales on exempted goods through dealers and retailers who were dealing with exempted goods supplied by AJK industries.
In this way, they added, the exemption of sales tax on value-addition would also be recovered by the FBR that would increase the cost of production while working in AJK.
Practically it will become impossible to pay all taxes at import stage, carry raw materials in AJK for manufacturing and then sell to customers in Pakistan and again pay sales tax on such goods.
The FBR has also introduced section 40D of the Sales Tax Act, 1990 authorising field staff to establish check posts at the exit point of tax exempt areas so that monitoring and collection of sales tax can be ensured at the time of transfer of goods from sales tax exempt areas to non-exempt areas (Gilgit-Baltistan, AJK and former FATA/PATA) to the rest of the country.
Industry representatives were of the view that the additional cost of taxes and freight from Karachi will become higher than the saving of 2.5 percent to 3.5 percent (in shape of exemption on sales tax) resulting into loss and then closure of industries in AJK.
As per stance of FBR, it had issued instructions to the tax offices across the country late last year following what it called the misconception that goods manufactured in AJK were exempted from sales tax under the state’s laws and therefore the same exemption was also available across the country.
The FBR said the sales tax on supplies, originating from AJK, is payable in AJK. However, dealers/distributors of such products located in other parts of the country are also required to discharge their liability on the value-addition on such products after adjustment of input tax paid in AJK as provided under the Sales Tax Act 1990.
The FBR said such notification would not apply to supplies made in the country, and the distributors/dealers of such items originating from AJK “shall charge
sales tax at applicable rates and values on printed retail price in case of items falling in the Third Schedule to the Sales Act 1990, and deposit the same in Pakistan as per law”.
Nevertheless, industry representatives of AJK believe FBR took arbitrary step even after ruling of local court. They see it as a conspiracy against the industrial units established in remote area.