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Auto parts sector spared 2pc extra tax

Auto parts sector spared 2pc extra tax

ISLAMABAD: Supplies of auto parts and accessories, tyres and tubes, and storage batteries have been spared 2 per cent extra tax by the Federal Board of Revenue through a sales tax general order (STGO) number 27 of 2014.

The FBR notification read, Rule 58S and 58T of the Sales Tax Special Procedure Rules 2007 (as amended vide Notification SRO No 896(1)/2013, dated 04.10.2013) provide for charge of extra tax at 2 per cent on goods specified. The rationale behind imposition of 2 per cent extra tax on the supply of the specified goods was to ensure collection of sales tax upfront in respect of value addition made by retailers at the retail stage.

This levy of extra tax has resulted in enhanced burden of tax for OEMs/automobiles manufacturers in view of provisions of law, particularly section 8 (1) (c) of the Sales Tax Act, 1990 which denies input tax adjustment of extra tax and as such burden of un-adjustable extra tax is going to add to the manufacturing cost of OEMs/automobiles manufacturers leading to possible escalation in the prices of automobiles.

Sales of auto parts and accessories, tyres and tubes and storage batteries as listed at Serial No 4, 5 and 7 of Table in Rule-58S by manufacturers of these goods to OEMs/automobiles manufacturers cannot be treated as retail sales. Therefore, in exercise of powers conferred under section 55 of the Sales Tax Act 1990, the Federal Board of Revenue has clarified that extra tax at 2 per cent under the provisions of Rule 58T of the Sales Tax Special Procedure Rules, 2007 shall not apply on the supply of goods listed at Serial No 4, 6 & 7 of Table in Rule-58S of the rules ibid.

This dispensation shall only be available, to the supplies of auto parts and accessories, tyres and tubes and storage batteries made by manufacturers of these goods directly to OMEs/ automobiles manufacturers and for manufacturing only and subject to submission of quarterly statement by OMEs/automobiles manufacturers to their respective LTUs/RTOs in respect of purchases of above goods on the specified format. This clarification shall take effect on and from October 4, 2013 i.e. the date of issuance of notification SRO No 89(I)/2013 dated 4.10.2013.