FBR to pay back ‘mistakenly’ deducted sales tax to importers

KARACHI: The Federal Board of Revenue (FBR) will refund or adjust the amount mistakenly deducted under the sales tax head till June 30 to the importers of fabrics, sources said on Saturday.

The sources said the FBR allowed the compensation to fabrics importers, who paid higher sales tax at the time of clearance due to ‘misinterpretation’ of zero-rating by customs authorities. The tax has been deducted for almost the last one year.

Inland Revenue wing of the FBR directed all chief commissioners to examine the goods declaration filed by the importers and the higher sales tax collected by the customs authorities.

The sources said the importers of finished fabrics were entitled to zero-rated sales tax till June 30, but the customs authorities deducted five percent tax on the grounds that the relief of concessionary rate was restricted only to the industrial importers.

Consequently, the commercial importers demanded of the tax authorities to pay back their amount, terming the action of the customs department as discretionary.

The customs authorities in Karachi also approached FBR in June 2017 to take clarification on the issue. 

Tax officials said zero percent of sales tax is available to the commercial importers if they supply imported products to five export-oriented sectors for use in goods made for exports. If an importer fails to furnish proof of such supplies through returns, he could not benefit from zero-rated sales tax regime.

The Inland Revenue department, through its letter on July 14, 2017, however, restrained the customs authorities from further examining and ‘interpreting’ the zero-rated sales tax notification (statutory regulatory order 1125(I)/2011) regarding the claim of concessionary rates by the commercial importers of finished fabrics.

“Interpretation of the collectorate that benefit of zero percent sales tax on commercial import of fabrics is limited only to those fabrics which are supplied to industrial sector of five export-oriented sectors is not correct,” said the department. “In no case, it can be ascertained at the import stage that the customer of the commercial importer, importing fabric, would be a retailer or a manufacturers.”

The government, in the budget 2017/18, revived the zero-rated sales tax for five export sectors to overcome the issue of pending refunds and ensure availability of liquidity with the exporters. 

FBR, however, amended the said SRO and raised the rate on commercial imports of fabric, which was previously subject to sales tax at zero percent, to 6 percent along with 2 percent value addition tax from July 1, 2017. Sales tax rates on supplies of finished fabric, finished articles of textile/textile made-ups and leather/leather made-ups were increased to 6 percent from 5 percent. Import of raw and ginned cotton by textile sector will be subject to 5 percent sales tax with effect from July 15, according to the amendments.