FBR exempts export sectors from sales tax on fuel supply

KARACHI: The Federal Board of Revenue (FBR) on Tuesday allowed three fuel suppliers to supply petroleum products on zero sales tax rate to the exporters – at least seven months after the announcement of zero rating facility.    

The FBR, in a fresh notification, said it allowed three energy companies to supply oil and coal at zero-rate sales tax to five export-oriented sectors. It directed two companies, namely Hascol Petroleum Limited and Byco Petroleum Limited to supply diesel and Awan Trading Company (Pvt) Limited for coal supply to the export sectors.

Under the Sales Tax General Order No. 24, petroleum products are to be supplied tax-free to textile, carpets, leather, sports and surgical goods sectors.

The government restored the sales tax zero-rating for five export sectors from July 1, 2016. The provision of tax free petroleum products, including furnace oil, diesel oil and coal made part of zero-rated regime through a notification on June 30, 2016.

Zero rating facility was introduced to resolve the issue of tax refunds. The government unveiled ‘no fund no payment’ facility in agreement with the businessmen, which fretted over the delay in release of refunds from the tax authorities. Delayed fund release caused liquidity crunch and slowed down their business progress. 

However, the refund claims have again surpassed Rs100 billion despite the implementation of this facility. This was partly because not every business came under the zero rating regime. At present, only a few exporting units, registered at the tax departments in Karachi and Faisalabad, have been allowed to avail this facility. 

Sources at FBR said more exporting units would be added to this regime after a thorough examination. The sources said the FBR devised strict rules and bounds export sectors to comply with the rules in order to avail this facility. 

The revenue body made the physical verification of a manufacturer’s premise by tax officials mandatory before allowing the facility. An exporter has to apply for the facility and its permission may take at least two months after the submission of an application by a manufacturer.

The fuel supply was added to the tax-free regime following the demand of textile sector. Textile makers said they have installed power generating units for export goods manufacturing due to power shortage.

The power generating units consume bulk quantity of fuel and the sales tax rate at 17 percent on petroleum, lubricant and oil products cause further increase in cost of production, they maintained.