Tea imports exempted from value-added sales tax

KARACHI: The Federal Board of Revenue (FBR) on Thursday asked the customs department to consider raw tea imports meant for manufacturing exempted from three percent value-added sales tax.

The FBR, referring to a case, said raw black tea imported by sales tax registered individuals was meant for manufacturing and such production activities could not come under the ambit of additional sales tax.

Through Finance Act 2019, the FBR imposed three percent minimum value-added sales tax on imported items with some exceptions. The sources said Unilever Pakistan approached the FBR to clarify the issue of the levy on black tea imported as raw materials for manufacturing purpose.

The FBR, in an official note to the customs, said the newly-inserted Twelfth Schedule to the Sales Tax Act 1990 explained the minimum value-added tax of three percent is not applicable on registered individuals who import raw materials and intermediary goods meant for use in an industrial process. But, the imports are subject to customs duty at a rate less than 16 percent ad valorem under First Schedule to the Customs Act, 1969.

“The activity of blending, mixing, processing and packing falls within the ambit of the definition of ‘manufacturer’,” the FBR said. Therefore, the tea imported for use in such manufacturing process is to be treated as ‘raw material and intermediary goods’, it added.

Further, the customs duty for such tea is 11 percent, which is below 16 percent. “Therefore, tea imported for use in manufacturing process is excluded from the levy of three percent value-addition sales tax,” the FBR said.

The revenue body excluded the imports by Unilever Pakistan Limited and Tapal Tea (Private) Limited from the additional sales tax.

The import of tea amounted $543.92 million during the July-May period of 2018/19 compared with $524 million in the corresponding period of the preceding fiscal year, showing an increase of 3.61 percent, according to the Pakistan Bureau of Statistics.

FBR sources said businessmen from other economic sectors are also approaching the revenue body to clarify the imposition of value-added sales tax at customs stage. Recently, manufacturers of oil and ghee also requested the FBR to exempt import of edible oil from the levy.

The industry also sought clarification from the FBR after several consignments got stuck since July 1 after the implementation of the additional sales tax.

The Finance Act 2019 clearly mentioned that the value-added tax under the Twelfth Schedule of the Sales Tax Act 1990 would also not be charged on imports, such as petroleum products, goods imported by service providers for their in-house business use, cellular mobile phones, liquefied natural gas/re-gasified LNG and second-hand worn cloths.