The Karachi Chamber of Commerce and Industry (KCCI) has suggested to the tax authorities to remove the Value Added Tax (VAT) imposed on commercial importers to rectify an anomaly in the law.
The KCCI, in its 2022/2023 budget proposals submitted to the Federal Revenue Board (FBR), said that a 3% value-added sales tax at the import stage for commercial importers of commodities has deleted in the 2019-20 finance law after long deliberations with the FBR and the Ministry of Finance for several years.
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It was agreed by FBR that the tax is unjustified because commercial importers add no value to the raw materials. It is sold to SMEs without any change in form or process. Since no inputs such as gas, electricity, labor or machinery were used, the 3% VAT was an obvious anomaly.
Unfortunately, the following year, through the Finance Act 2020, an amendment was made to the Twelfth Schedule to the Sales Tax Act 1990 – under the heading ‘Procedure and Conditions’, in the condition (2), a 3% value added sales tax was again imposed on the commercial importation of industrial raw materials, thus restoring the anomaly.
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Further, after the reimposition of this 3 per cent VAT, the Section 8 B(1)(2) exclusion provided for commercial importers under SRO 647(I) 2007 has not been reinstated. This resulted in double taxation, with importers being forced to pay an additional 10 percent value added on top of the 3 percent paid at customs.
The result of these amendments led to a double anomaly in the 2020-21 finance bill.
A 3 percent VAT cannot be imposed on non-value added raw materials.
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The restriction of a 90 percent input adjustment amounts to double taxation, as importers of raw materials are forced to pay an additional 17 percent (10 percent of 17 percent) value added on top of the three percent cent paid at the customs stage under Section 8B of the Sales Tax Act, 1990 to SRO 1190(I)/2019.
The KCCI stated that this obvious anomaly should be rectified and raw materials imported by commercial importers would be excluded from the scope of condition (2) of the Twelfth Schedule to the Sales Tax Act on “Procedures and terms”. Thus removing the 3% value added sales tax on commercial importers which has been unjustly reimposed.
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Importers of finished products paying 3 percent VAT at the customs stage and having no local purchase should be excluded from the application of Article 8 (B).
The proposed amendment will eliminate an obvious anomaly and disparity in sales tax rates on raw materials, as all raw materials are ultimately consumed in industry, and primarily by SMEs.