ISLAMABAD: Awaking to the massive misuse of zero-rated regime, the Federal Board of Revenue has geared up for recovery from textile units and other leading export-oriented companies involved in misuse of SRO 283(I)/2011 and SRO 1125(I)/2011 to avail zero-rating or reduced sales tax facility by supplying goods to non-zero rated sector or unregistered persons.
The FBR has issued instructions to the Chief Commissioners of the Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) for action against the companies involved in misuse of SRO 283(1)/2011 as amended by SRO 1125(1)/2011.
It is to be noted that the FBR has sprung into action following a report by Karachi LTU Chief Commissioner Rehmatullah Khan Wazir regarding the massive misuse of zero-rated regime. The FBR has directed the LTUs/RTOs to scrutinize the registered persons/ taxpayers to ascertain the misuse of SRO(s) to recover the misappropriated revenue.
In his report, the Karachi LTU Chief Commissioner informed that zero-rating facility on local supply and imports was introduced for five sector, i.e textile, leather, sports, surgical goods and carpets through SRO 509(1)/2007 on June 9, 2007. Later, the SRO 509(1)/2007 was amended through SRO 283(1)/2001 on April 1, 2011 and zero-rating along with reduced rate was allowed for the specific sectors under certain conditions. One of the important conditions as referred to in para (c) (i) of the SRO 283 is that the benefit of zero-rating or reduced rate shall be admissible only if the goods are usable and are used in these targeted sectors for trading and manufacturing purposes.
According to para (c) (i) of SRO 283(I)/2011, the facility shall be admissible only if the goods covered in this notification are usable and are used in the aforesaid sectors for trading and manufacturing purposes. No other sector or industry shall be entitled to the benefit of this notification.
Meanwhile, a review of the domestic sales invoices of monthly Sales Tax return of a manufacturer of polypropylene fibres and yarns pointed out that the registered person made supplies of Rs1.122 billion during April 2011 to December 2013 at 0 percent of 2 percent to three companies and unregistered persons. The supplies were made to companies who were not engaged in the textile sector (one of the five zero rated sectors). On the contrary, these companies were engaged in manufacturing of building materials, flexible bulk container, bags and packing materials respectively. The company misused SRO 283(I)/2011 and charged sales tax at 0 percent or 2 percent instead of standard rate of 16 percent or 17 percent.
According to the report, the LTU served notices on these companies and after a hearing, imposed Rs139.429 million along with 100 percent penalty in view of tax fraud in terms of section 2(37) of Sales Tax Act.