Customs blocks NTNs of bogus manufacturers

KARACHI: Pakistan Customs has blocked national tax numbers (NTNs) of at least six importers after it found that they pretended themselves as manufacturers to illegally avail sales tax concessions, officials said on Thursday.

The customs authorities initially blocked NTNs of the importers and initiated legal action against them.

Blocking the NTNs of more importers is in the pipeline, a customs official said.

The official said the NTNs were blocked upon verification of addresses of those importers and the manufacturing units were found non-existing.

Interestingly, all the identified importers/manufacturers were shown as active in the system of Inland Revenue offices, which are responsible for granting sales tax registration for concessionary regime.

Pakistan Customs also decided to block all those importers whose status was suspended or blacklisted for sales tax registration on the website of the Federal Board of Revenue (FBR).

The customs authorities also undertook an exercise to determine the consumption of imported raw materials for manufacturing of finished goods. “It is detected in hundreds of cases that imports were significantly high against manufacturing,” the official said.

The customs authorities sent all those cases to the Inland Revenue offices for further examination. Pakistan Customs, however, decided in such cases to allow provisional release on submission of bank security that will be returned on verification by Inland Revenue offices, the official added.

The FBR allowed exemption and concessions to textile sector through a statutory regulatory order (SRO 1125(I)/2011) issued on December 31, 2011 to boost exports.

The FBR allowed zero-rate sales tax on import of raw materials by bonafide exporters/manufacturers.

The sales tax rate for commercial importers is around nine percent on the import stage for the similar products.

The customs authorities have been pursuing the issue for the last one year and updating Inland Revenue authorities that commercial importers were misusing the concessionary regime by registering themselves as manufacturers on the FBR online system and evading sales tax.

The latest decision has been taken by the Pakistan Customs after repeated reminders to FBR’s IR Operation about the issue.

In the latest correspondence with the IR authorities, Pakistan Customs said it is not possible for them to conduct such verification exercise for all those importers claiming benefit of the SRO as manufacturers, for various reasons including port congestion on account of delayed clearance, jurisdiction issues and human rights.

Last month, the FBR launched investigation against 42 textile units for rendering an estimated seven billion rupees in tax revenue losses through misuse of zero-rating facility of sales tax.

The FBR identified 42 textile companies which made sales of Rs36 billion to bogus companies and deprived the government of tax revenue. Textile units could avail zero percent sales tax on sales to registered companies under the statutory regulatory order 1125(I)/2011).