SRO Amendments: FBR removes disparity between imported and local cotton sales tax

January 17, 2020 (MLN): The Federal Board of Revenue (FBR) on Thursday apprised the details through notification regarding the measures introduced in the Sales Tax Act, 1990 and Federal Excise Act, 2005 through the Finance Supplementary (Second Amendment) Act, 2019

Under the SRO, Sales tax measures taken are explained below:

• Greenfield Industry

Through the Finance Supplementary (Second Amendment) Act, 2019, exemption from sales tax was provided on the import of plant and machinery by the Greenfield industry. For ease of understanding and clarification, the term “greenfield industry” has now been inserted as under

A new industrial undertaking

1. setup on land which has not previously been utilized for any commercial, industrial or manufacturing activity
2. built without demolishing, revamping, renovating, upgrading, remodelling or modifying any existing structure, facility or plant
3. not formed by the splitting up or reconstitution of an undertaking already in existence or by transfer of machinery, plant or building from an undertaking established in Pakistan prior to commencement of the new business and is not part of an expansion project;
4. using any process or technology that has not earlier been used in Pakistan and is so approved by the Engineering Development Board

Moreover, a new industrial undertaking is approved by the Commissioner on an application made in the prescribed form and manner, accompanied by the prescribed documents and, such other documents as may be required by the Commissioner

• Rationalizing the Scope of Tier 1 Retailer

In view of the higher tariff rates of electricity, the conditions to qualify for a Tier 1 retailer have been      amended so as to increase the threshold of electricity consumption from Rs 600,000 to Rs 1200,000

• Penalty for Persons who violate FBR Integrated Software for Sale or Track and Trace System

• Penalty for violation of printing requirement of Retail Price

• Penalty for violation of Section 40D -To document further supplies from tax-exempt areas

It has been noticed that some persons are fictitiously routing their goods through areas having exemptions/special tax treatments. In order to discourage this activity and to protect genuine businesses of these areas, a new provision has been added in an issued circular.

• Amendment in Section 73-Manufacturers to sell goods to Registered Persons

Section 73 has been amended to provide that a registered manufacturer shall make all taxable supplies to a person who has obtained registration under the Act excluding supplies not exceeding a value of rupees 100 million in a financial year and rupees 10 million in a month, failing which the supplier shall not be entitled to claim credit adjustment or deduction of input tax as attributable to such excess supplies to unregistered person.

• Rationalization of rate of Imported Cotton

The local supply of ginned cotton was exempt from payment of sales tax prior to the enactment of the Finance Act, 2019. The same was subjected to the reduced rate of sales tax at 10%. In order to remove the disparity between sales tax rates on imported and local cotton, the rate of sales tax on imported cotton has been raised to 10%.

• Amendment in the 12th Schedule

In the Twelfth Schedule, the import of goods which are not inputs or raw material and whose customs duty rate is 16% or above are subject to an additional value addition tax at 3%. Certain exclusions have also been provided therein from the levy of this 3% value addition tax.

• Chargeability of Mobile Phones

To promote the digital economy, the Sales Tax Act 1990 has been amended and the sales tax on the mobile phones up to the value of 30 US dollars has been reduced from Rs 130 to Rs 100 and phones having value up to 100 US Dollars from Rs 1320 to Rs200.

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