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FBR unearths Rs16bln sales tax evasion on tea whitener

October 23, 2020

KARACHI: The Federal Board of Revenue (FBR) has unearthed approximately Rs16 billion worth of tax evasion by manufacturers and suppliers of tea whitener who illegally report it as the dairy product, sources said.

The sources at Large Taxpayers Office (LTO) Karachi said the office conducted, for the last four years, a detailed audit of taxpayers engaged in production of tea whitener. The sources said supply of milk or products manufacturing using dairy products are exempted from sales tax under the law. However, the manufacturers of tea whitener claimed zero-rated sales tax by declaring the whitener as milk.

The sources said the taxpayers claimed the zero rating on the basis of classification of a product namely ‘tea max’. They said ‘tea max was a condensed milk with added sweeteners. According to LTO Karachi, tea whitener producers claimed that their product came under the ‘tea max’ (a compliant product) category, which essentially was condensed milk with added sweeteners.

A FBR official said the exemption of zero-rating was granted under the Sales Tax Act 1990 on goods, which are beneficial to public health and could be used as nutrition.

Further, as per definition of milk by Pakistan Council of Scientific and Industrial Research the drinking milk should contain at least 6.5 percent of milk or vegetable fats.

“The products manufactured as tea whitener has been detected to have 5.95 of vegetable fats, which is below the specification,” the tax official added.

The official said in the past leading powdered manufacturing companies claimed their product as milk but it was established that their products were not milk.

The Supreme Court of Pakistan in its order March 2018 directed such companies to remove the word milk.

The apex court directed the powdered milk manufacturing companies to clearly print on packaging of their products that ‘it is not natural milk’ and the court also restrained the companies from using the word ‘milk’ for their products.

The FBR official said in the latest cases a summary has been sent to the FBR headquarter regarding clarification on the issue. The official said the FBR allowed recovery of the amount from the manufacturers and suppliers of tea whitener against the wrong claim of sales tax exemption.