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SALES TAX ZERO RATED REGIME

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READ WITH:

GINNING INDUSTRY UPDATE

INCOME TAX EXEMPTIONS

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FEDERAL BOARD OF REVENUE

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EUS UPDATE CONTENTS

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I. AMNESTY NOTIFICATION

SRO. 179 (I)/2013 and Allied Amendments & Information

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II. UPDATED VERSION OF RELEVANT NOTIFICATION

SRO. 1125 (I)/2011 and Allied Amendments & Information

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III. PREVIOUS REFERENCES

SROs. 1058 (I)/2011, 1012 (I)/2011, 283 (I)/2011 etc.

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IV. USEFUL REFERENCES

Brokerage/Commission WHT (Final Tax)

Discrepancies

Electricity WHT

Fabric Sales Tax @ 5%

IT Exemption

Local Supplies or Services WHT/Amnesty

Polypropylene Fiber Manufacturers

Physical Verification

Stay against Recovery Notices

Utility Companies (Electricity & Gas Consumption)

(Go to EUS Contents)

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I. AMNESTY NOTIFICATION

Amnesty Scheme Deadline Extended up to 15.04.2013:

Following an encouraging response from textile sector, which deposited over Rs. 3 billion to clear their past sales tax liabilities, the FBR has extended the amnesty scheme up to 15.04.2013 thru an amendment in SRO. 179 (I)/2013 dated 07.03.2013 vide SRO. 274 (I)/2013 dated 01.04.2013. (Go to EUS Contents)

Zero-Rated Sales Discrepancies:

Textile Units having difficulty in filing special returns, but who deposit Sales Tax by 31.03.2013 shall still be entitled to amnesty under SRO. 179 (I)/2013 dated 07.03.2013 – FBR Announcement

CREST detection in non-verified zero rated sales is available in special return. You may add missing invoices or edit invoices shown for depositing final liability. These are subject to verification by system. (Go to EUS Contents)

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All registered persons, who claimed zero-rating on supplies made by them in terms of SROs. 283 (I)/2011 dated 01.04.2011, 1058 (I)/2011 dated 23.11.2011 & 1125 (I)/2011 dated 31.12.2011, during the period from 01.04.2011 to 28.02.2013, may with respect to all or part of such supplies on which due tax has not been paid and irrespective of the past or present registration status of the buyer, pay ST @ 2% of the value of such supplies thru a special ST return to be prescribed by the FBR, alongwith details of all sales tax invoices against which such payment is being made, without any default surcharge and penalty, provided that such payment is made on or before 31.03.2013 vide SRO. 179 (I)/2013 dated 07.03.2013. [1]

(Go to EUS Contents)

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II. UPDATED VERSION OF RELEVANT NOTIFICATION

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SALES TAX ZERO RATING REGIME (STZRR) FOR EXPORT-ORIENTED MANUFACTURING UNITS

SALES TAX ZERO-RATING ON LOCAL SUPPLIES & IMPORTS FOR THE EXPORT-ORIENTED MANUFACTURING UNITS:

SRO. 1125 (I)/2011 dated 31.12.2011.––In exercise of the powers conferred by clause (c) of section 4 read with clause (b) of sub-section (2) and sub-section (6) of section 3, clause (b) of sub-section (1) of section 8 and section 71 of the Sales Tax Act, 1990, and in supersession of its Notification No. S.R.O. 1058 (I)/2011, dated the 23rd November, 2011, the Federal Government is pleased to 1[direct that sales tax shall be charged, levied and paid at the rate of two percent of the value of goods mentioned in column (2) of the Table-I below, at the rate of five per cent of the value of goods mentioned in column (2) of the Table-II below, falling under PCT heading numbers specified in column (3) of the said respective tables, and at the rate of two, five or seventeen percent, as the case may be, on the goods or class of goods mentioned in the conditions stated in this notification], to the extent and in the manner as specified in the aforesaid conditions, namely:––

(Go to EUS Contents)

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1.Substituted for the words etc. “notify the goods specified in column (2) of the Table below under the PCT heading numbers mentioned in column (3) of the said Table, including the goods or class of goods mentioned in the conditions stated in this notification, to be the goods on which sales tax shall, subject to the said conditions be charged *[at the rate of two percent] or, as the case may be, at the rate of five per cent, wherever applicable” by SRO. 682 (I)/2013 dated 26.07.2013.

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*  Words “at the rate of two percent” substituted for the words “at zero-rate” w.e.f. 01.03.2013 videSRO. 154 (I)/2013 dated 28.02.2013.

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(Go to EUS Contents)

TABLE-I [2]

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Table-I read under Original SRO. 1125 (I)/2011 dated 31.12.2011 with following Amendments:

Latest/Second Amendment in the Table-I to exclude finished goods:

S. Nos. 1, 2, 3, 6 & 7 (relating to leather, textiles, carpets, sports goods & surgical goods) read as provided vide SRO. 504 (I)/2013 dated 12.06.2013; [3]

S. No. 56 (other colouring matter & other preparations) amended to exclude “master batches” vide SRO. 504 (I)/2013 dated 12.06.2013; and

S. No. 68 relating to “shoe adhesives” omitted vide SRO. 504 (I)/2013 dated 12.06.2013.

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(Go to EUS Contents)

TABLE-II [4]

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S. No.

Description of goods

PCT Heading No.

(1)

(2)

(3)

01.

Finished articles of leather and artificial leather

Respective headings

02.

Finished articles of textiles and textile made-ups excluding used and worn clothing;

Respective headings

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CONDITIONS [5]

(Go to EUS Contents)

[(i) The benefit of this notification shall be available only to persons doing business in textile (including jute), carpets, leather, sports and surgical goods sectors, who are registered as manufacturer, importer, exporter or wholesaler under the Sales Tax Act, 1990, and appear on the Active Taxpayers List (ATL) on the website of Federal Board of Revenue;

(Go to EUS Contents)

(ii) this notification shall apply from––

(a) spinning stage onwards, in case of textile sector;

(b) production of PTA or MEG, in case of synthetic sector;

(c) regular manufacturing, in case of carpets and jute products;

(d) tannery onwards, in case of leather sector; and

(e) organized manufacturing, in case of surgical and sports goods;

(Go to EUS Contents)

(iii) on import by registered manufacturers of five sectors mentioned in condition (i), sales tax shall be charged at the rate of two per cent on goods useable as industrial inputs;

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(iv) on import by commercial importers of goods useable as industrial inputs, sales tax shall be charged at the rate of two per cent along with two per cent value addition tax at the import stage, which will be accountable against their subsequent liabilities arising against supply of these goods to persons in the five sectors mentioned in condition (i) at the rate of two per cent, and to persons outside the said five sectors at the rate of [seventeen per cent]. [6] The balance amount shall be paid with the monthly sales tax return, or in case of excess payment shall be carried forward to the next tax period;

(Go to EUS Contents)

(v) import of finished goods ready for use by the general public, shall be charged to tax at the rate of [five] [7]  per cent and value addition tax at the rate of two per cent;

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(vi) supplies of goods, usable as industrial inputs, to registered [or unregistered] [8] persons of the five sectors mentioned in condition (i), shall be charged to tax at the rate of two per cent, whereas supplies to persons not belonging to the said five sectors shall be charged to tax at the rate of [seventeen per cent]; [9]

(Go to EUS Contents)

(vii) supplies of finished products of the sectors specified in condition (i) to [] [10] retailers shall be charged to sales tax at the rate of [five] per cent; [11]

(Go to EUS Contents)

[(viia) notwithstanding anything contained in any other condition of this Notification, import and supplies of fabric shall be charged to sales tax at the rate of three per cent and value addition tax at the rate of two per cent shall be chargeable on commercial imports of fabrics,]

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Condition (viia) ins. by SRO. 898 (I)/04.10.2013.

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(viii) registered persons engaged in the retail sale of these goods shall pay sales tax at the rate of [five] per cent on their retail sales and shall be entitled to input tax adjustment. Such goods supplied at the rate of [five] per cent shall not constitute part of turnover for the purpose of turnover tax payable as prescribed under Chapter III of the Sales Tax Special Procedure Rules, 2007[12]

(Go to EUS Contents)

[(ix) registered manufacturers who process goods, including fabrics, owned by other persons shall charge sales tax at the rate of two per cent of the processing charges received by them;] [13]

(Go to EUS Contents)

[(ixa) goods specified in Table-I, imported or supplied to registered manufactures, whether or not of the five sectors, for manufacture of goods specified in Table-I or Table-II, shall be charged sales tax at the rate of two per cent on their import or supply;] [14]

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[(x) a registered person who has consumed inputs acquired on payment of sales tax, shall be entitled to input tax adjustment, subject to the relevant provisions of the Sales Tax Act, 1990 and Rules made thereunder.

[Provided that refund against local supplies, if any, shall be admissible only subject to pre-refund audit and in case of value addition of less than ten percent subject to the condition that the registered persons furnishes a revolving bank guarantee valid for at least ninety days issued by a scheduled bank to the satisfaction of the Commissioner, Inland Revenue having jurisdiction, of an amount not less than the average monthly refund claim during last twelve months:

Provided further that the post-refund audit shall be conducted and finalized within a period of ninety days and certificate to the genuineness of the refund claim shall be issued for each and every claim by the Commissioner, Inland Revenue having jurisdiction,] ]

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First & second provisos substituted for the following proviso by SRO. 898 (I)/2013 dated 04.10.2013:

“Provided that in case of local supplies no refund shall be admissible. However, exporters shall be entitled to get refund in accordance with the law.”

(Go to EUS Contents)

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Clause (x) was earlier substituted for the following by SRO. 221 (I)/2013 dated 19.03.2013:

“(x) a registered person who has consumed any other inputs acquired on payment of sales tax, shall be entitled to input tax adjustment or, as the case may be, refund against taxable supplies made by him, subject to the relevant provisions of the Sales Tax Act, 1990 and Rules made thereunder;”

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(xi) registered manufacturers shall be entitled to adjustment of input tax paid on machinery, parts, spares and lubricants acquired by them for their own use, subject to the relevant provisions of the Sales Tax Act, 1990 and Rules made thereunder; and

(Go to EUS Contents)

(xii) supply of electricity and gas to the registered manufacturers or exporters of the five sectors mentioned in condition (i), shall be charged sales tax at the rate of zero per cent in the manner specified by the Board;]

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2. This notification shall take effect on and from the 1st day of January, 2012.

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III. PREVIOUS REFERENCES

(Go to EUS Contents

The existing SRO. 1125 (I)/2011 superseded the preceding SRO. 1058 (I)/2011 dated 23.11.2011 [supersession of SRO. 1012 (I)/2011 dated 04.11.2011]. Earlier the STZRR was notified vide SRO. 283 (I)/2011 dated 01.04.2011 [supersession of SRO. 509 (I)/2007 dated 09.06.2007], which was subsequently superseded by aforesaid SRO. 1012 (I)/2011 dated 04.11.2011. Aforesaid SRO. 283 (I)/2011 as amended and clarified from time to time read under EUS Update.

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SRO. 509 (I)/2007 dated 09.06.2007 superseded SRO. 525 (I)/2006 dated 05.06.2006. The supersession revealed an addition of description as “buttons” at S. No. 140, and omission of “hyderogen carbonate (Sodium bicarbonate)”, “Methylene chloride”, “Methyl ethyl ketone”, “Citric acid”, “Antioxident”, “Ink for inkjet engraver”, and “Prepared binders for foundry moulds including Peroxide stabilizer & Nickel salt” appearing at S. Nos. 24, 28, 36, 49, 54, 76 & 102 of the superseded notification.

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Above-referred superseded SRO. 525 (I)/2006 dated 05.06.2006 superseded the SRO. 621 (I)/2005 dated 17.06.2005 [supersession of of SROs. 535 & 536 (I)/2005 both dated 06.06.2005]. The superseded SRO. 536 (I)/2005 dated 06.06.2005 had contained the following Tables:

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Table-I Textiles S. Nos. 1-245
Table-II Leather S. Nos. 1-73
Table-III Carpets S. Nos. 1-6
Table-IV Surgical goods S. Nos. 1-13
Table-V Sports goods S. Nos. 1-20

(Go to EUS Contents)

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IV. USEFUL REFERENCES

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Brokerage/Commission WHT (Final Tax):

It is clarified that under the provisions of section 233 of the Income Tax Ordinance, 2001, WHT is deductible @ 10% on payments made on account of brokerage commission, in the STZRR categories (Carpets, Leather, Surgical goods, Sports goods & Textiles). Tax collected shall be final tax on the income from brokerage/commission of such person videFBR Circular No. 3/2011 dated 01.04.2011. (Go to EUS Contents)

Discrepancies:

Discrepancies highlighted by Crest: No ST zero-rating on power, gas consumption (Business Recorder 15.10.2013).

Electricity WHT:

The provisions of section 235, shall not be applicable to the taxpayers who fall under the STZRR and registered with sales tax as exporter or manufacturer videSRO. 1055 (I)/2008 dated 10.10.2008. (Go to EUS Contents)

Fabric Sales Tax @ 5%:

5% ST chargeable on fabric: The FBR earlier informed the Pakistan Retail Council Karachi that the fabric is chargeable to 5% ST and value addition tax @ 2% at the import stage and all local supplies of fabric are also chargeable to 5% ST under SRO. 504 (I)/2013 dated 12.06.2013 & SRO. 682 (I)/2013 dated 26.07.2013 (Business Recorder 31.08.2013).

IT Exemption:

IT Exemption amdt SRO. 669 (I)/2013 dated 17.07.2013 read with EUS Update “Income Tax Specific Provisions Exemptions”.

Local Supplies or Services WHT/Amnesty:

Read with clause (45A) of Part-I of the Second Schedule of the Income Tax Ordinance, 2001 (XLIX of 2001). Read under EUS Update Income Tax Specific Provisions Exemptions.

(Go to EUS Contents)

Polypropylene Fiber Manufacturers: (PFM)

Manufactures of polypropylene fiber: “serious discriminatory treatment meted out”:

A serious discriminatory treatment has been meted out to the manufactures of polypropylene fiber and bulk continuous filament yarn through SRO. 1125 in sales tax regime, as their main input i.e polypropylene chips is subjected to standard sales tax rate, disallowing refund of input tax on import of input goods (Business Recorder 16.08.2013). (Go to EUS Contents)

Physical Verification:

Physically verifying ST zero-rating on gas, electricity: survey of exporters’ manufacturing premises launched (Business Recorder 03.04.2014).

Stay against Recovery Notices:

ZRR Taxpayers: LHC grants Stay against Recovery Notices: A major issue of sales tax evasion involving Rs. 276.6 billion through misuse of the zero-rated facility based on discrepancies pointed out by Computerized Risk-based Evaluation of Sales Tax (CREST) has been challenged in LHC. The LHC has granted interim stay against recovery notices (Business Recorder 12.06.2013).

Utility Companies (Electricity & Gas Consumption):

Sales tax zero-rating for specified consumers with reference to export-oriented sectors (textiles, leather, carpets, surgical goods, sports goods etc.) was specified through STGO No. 07/2007 (KESC), 08/2007 (LESCO), 09/2007 (FESCO), 10/2007 (MEPCO), 11/2007 (GEPCO), 12/2007 (HESCO), 13/2007 (IESCO), 14/2007 (PESCO), 15/2007 (LIEDA), 16/2007 (SSGCL), and STGO No. 17/2007 (SNGPL) all dated 13.09.2007. 

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PROVIDERS OF RAW MATERIALS FOR CORPORATE & TAX POLICY DECISIONS & IMPLEMENTATIONS TO SAVE TIME, ENERGY & COST

(Go to EUS Contents)

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  1. [1] All the above-referred Zero-rating SROs available here in the EUS Update.
  2. [2]

    The existing “Table” renumbered as “Table-I” by SRO. 682 (I)/2013 dated 26.07.2013.

  3. [3]

    Textile related S. No. 02 was earlier amended to insert the expression “of more than 67 decitex” w.e.f. 02.06.2012 vide SRO. 593 (I)/2012 dated 01.06.2012 (First Amendment in the Table).

  4. [4]

    Table-II added by SRO. 682 (I)/2013 dated 26.07.2013.

  5. [5]

    Conditions substituted vide SRO. 154 (I)/2013 dated 28.02.2013, which shall take effect on and from 01.03.2013.

  6. [6] Words “seventeen per cent” substituted for “five per cent” by SRO. 682 (I)/2013 dated 26.07.2013.
  7. [7] Word “five” substituted for “two”, appearing for the first time, vide SRO. 682 (I)/2013 dated 26.07.2013.
  8. [8] Words “or unregistered” inserted by SRO. 221 (I)/2013 dated 19.03.2013.
  9. [9] Words “seventeen per cent” substituted for “five per cent” by SRO. 682 (I)/2013 dated 26.07.2013.
  10. [10] Word “registered” omitted by SRO. 221 (I)/2013 dated 19.03.2013.
  11. [11] Word “five” substituted for “two”, wherever occurring in clauses (vii) & (viii), vide SRO. 682 (I)/2013 dated 26.07.2013.
  12. [12] Word “five” substituted for “two”, wherever occurring in clauses (vii) & (viii), vide SRO. 682 (I)/2013 dated 26.07.2013.
  13. [13]

    Substituted for the following clause (ix) and Explanation by SRO. 221 (I)/2013 dated 19.03.2013:

    “(ix) registered manufacturers who process goods owned by others shall charge sales tax at the rate of two per cent on the value of goods, inclusive of processing charges received by them; 

    Explanation.––For the purposes of this provision, and in terms of the proviso to sub-section (33) of section 2 of the Sales Tax Act, 1990 the return of goods by the processor to the principal after processing shall constitute supply, and the value of supply of such goods shall be the open market price of such goods inclusive of the processing charges;”

  14. [14] New clause (ixa) inserted by SRO. 682 (I)/2013 dated 26.07.2013.

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