Tax exemption regime recommended for erstwhile Fata

PEHAWAR: The erstwhile Federally Administered Tribal Areas (Fata) will continue to avail exemption from certain taxes including federal and provincial duties and Sales Tax on electricity and cabinet sub-committee on Fata has also sought three-month extension in the registration of the Non-Custom Paid (NCP) vehicles.

The Khyber Pakistan Finance Department has lined up modalities for such exemptions which involves both federal and provincial taxes.

The federal government sub-committee on Fata Reforms at its meeting on July 2 had asked Finance Secretary, Khyber Pakhtunkhwa, Shakeel Qadir Khan to convene a consultative meeting with the Chief Commissioner Income Tax and Collector Customs Peshawar to suggest measures that could be incorporated in the exemption mechanism of federal taxes to the erstwhile Fata and Provincial Administered Tribal Areas (Pata).

It to be mentioned here the federal cabinet had approved a package for taxes exemption to these regions on May 31 and formed a sub-committee to view the decisions taken during the cabinet meeting and follow up on the same to avoid complications in this regard.

The committee met the other day (July 4) at the officer of the Finance Secretary and worked out recommendations for tax exemption for the merged tribal areas.

Shakeel Qadir presented the proposed exemption plan to the committee and the suggestions that arose out of the deliberations were also incorporated.

Regarding the federal taxes, the meeting was informed that the there was no issue on Federal Excise Duty (FED) which is levied on imports. A few ghee mills in the erstwhile Pata have approached the Peshawar High Court (PHC) for exemption of FED, but that was in the context of now annulled Article 247.

In order to provide a level-playing field to the ghee industry in Khyber Pakhtunkhwa, the committee recommended that no FED exemption should be granted and it was also informed, the owners of these ghee mills are not the bonafide residents of erstwhile Pata.

There was a considered view that the only issue pertaining to Customs Duties relating NCP vehicles needs to be resolved and it was recommended that the cutoff date for the provision of registration date of NCP vehicles should be extended for three months from the date of notification.

It was also recommended that registration data available with civil administration up to June 30 should also immediately be shared with the Federal Board of Revenue (FBR).

The data from June 30 up to the cutoff date should be subsequently within seven days of the cutoff date and exemption on customs duty should only be granted to those vehicles which did not enter through the notified customs stations.

The committee recommended that as except for the NCP vehicles there is no other demand even earlier for the exemption on imports and exports therefore no such exemption is required.

The government may, however, on case-to-case grant exemptions to special economic zones or industrial estates.

The committee also recommended that the exemption of sales tax on electricity for domestic consumers should be allowed.

It decided to further discuss the exemption of sales tax on electricity for commercial consumers other than industry.

It suggested that sales tax on retailers should also be exempted. Currently, retailers having turnover of more than Rs5 million are required to file sales tax details in rest of the country. There shall be no limit to the retailers of erstwhile Fata/Pata, the committee recommended.

It was informed that the cabinet had exempted Income Tax on profits and gains but this exemption is only for individuals. The same may be extended to an association of persons or companies.

The cutoff date for registration with the Federal Board of Revenue (FBR) may also be extended to June 30, 2019 from the current date of September 30.

The committee also sought extension of exemption of all Withholding taxes to salaried persons working in erstwhile FATA/PATA even if the payer resides outside these regions.

While taking up the provincial tax exemption, the committee recommended that the Khyber Pakhtunkhwa Revenue Authority (KPRA), should be allowed to collect taxes as per the existing mechanism viz-a-viz sales tax on services and final decision should be taken once an elected government assumes office.

It was informed that abyana (Canal and Drainage Act) is extended and Maalia abolished in 1975. Since then it’s not collected and the committee recommended further exemption for 5 years.

However, it reiterated that all the proposed exemptions are for the period of 5 years and not beyond.