FBR exempts raw materials’ imports from value-added tax

KARACHI: The Federal Board of Revenue (FBR) on Wednesday asked the tax officials to enforce exemption awarded to import of raw materials from value-added tax to encourage manufacturing activities in the country.

The government, in the budget 2019/20, exempted imports of raw materials from three percent value-added sales tax to promote manufacturing activities.

The FBR issued directives to all offices of Inland Revenue and Customs regarding

enforcement of changes made into the Sales Tax Act 1990 brought through Finance

Act, 2019.

The value-added tax was imposed through Sales Tax Special Procedure Rules, which were withdrawn in the budget. A new Twelfth Schedule has been added to Sales Tax Act, 1990 to apply the three percent value-added tax.

The FBR said earlier manufacturers importing goods for in-house consumption were excluded from the levy. Now, all raw materials and intermediary goods meant for use in industrial process, whether imported by manufacturers or commercial importers, have been exempted from the tax. But, they are subject to customs duty at a rate less than 16 percent ad valorem under First Schedule to the Customs Act.

The FBR did not mention whether or not import of capital goods – which are necessary for manufacturing – are exempted. The capital goods include plant and machinery and such goods do not fall under category of raw materials. Therefore the three percent value-added tax would continue to apply on the import of capital goods, tax experts said.

The FBR further said earlier petroleum products, imported by oil market companies (OMCs) and whose prices were regulated, were exempted from value-added tax. Now, all petroleum products imported by OMCs would enjoy the exemption, the FBR added. Mobile and satellite phones have also been exempted from the levy.

The exemption from three percent tax has also been provided to gold and silver in un-worked condition.

The FBR informed the offices of Inland Revenue that the new condition introduced in the budget regarding monitoring of computerised national identity card (CNIC) and national tax number (NTN) of unregistered buyers would be applicable from August 1.

The FBR said the section 23 of Sales Tax Act, 1990, relating to issuance of invoices and particulars to be specified therein, has been amended. “In case of supplies to unregistered individuals, their NIC or NTN number shall be specified in invoice.”

The FBR, however, said CNIC or NTN would not be required in case of supplies made by a retailer where the transaction value inclusive of sales tax amount does not exceed Rs50,000 and the sale is being made to an ordinary consumer buying goods for his own consumption and not for the purpose of resale or processing.

The FBR said if a purchaser provides incorrect particulars of CNIC or NTN, liability of tax or penalty would not arise against the seller, “in case of sale made in good faith”.