Taxation

The Federal Board of Revenue (FBR) has directed Regional Tax Office (RTO) Peshawar to register all steel units in tribal areas and ensure recovery of federal excise duty (FED) from these units. The direction has been given by the FBR here on Wednesday in the budget instructions (2019-20) addressed to the field formations.

The FBR has also highlighted that Board will make rules for initiating criminal proceedings against any departmental officer or official/authority, who willfully and deliberately commits or omits an act which results in undue benefit or advantage to the authority or the officer or official or to any other person.

According to the FBR, the supplies by manufacturers and imports of steel billets, ingots, ship-plates, bars and other long re-rolled profiles have been exempted from sales tax. In lieu thereof, FED has been imposed on these products by inserting serial number 58 in Table-I of First Schedule to the Act, whereby these products have been subjected to federal excise duty at 17%. An entry pertaining to these products has also been made in the Second Schedule, thus making the federal excise duty on these products chargeable in sales tax mode.

Accordingly, input sales tax can be adjusted against this FED and this FED shall also be adjustable against sales tax. The objective was to extend the levy in relation to steel products to tribal areas which enjoy exemption from sales tax, earlier under SRO1212(I)/2018, and now under Sixth Schedule. Accordingly, RTO Peshawar is requested to register all steel units in tribal areas and ensure recovery of federal excise duty due.Further, a new sub-section (5A) has been added to section 3 of the Federal Excise Act, 2005, providing for minimum production criterion for items listed in Fourth Schedule. Presently, only aforesaid steel items are listed in this schedule. Minimum criteria based on kwh of electricity have been specified and it has also been stipulated that in case minimum production exceeds actual supplies in a tax period, the FED shall be paid on the basis of minimum production. In case of ship plates and other re-rollable scrap produced from ship­ breaking, the minimum production has been prescribed as 85% of the weight of the vessel imported for breaking. Field formations are requested to study the procedure in detail and ensure implementation accordingly. In case of ship-breakers, the field formations should not make any case in relation to wastage / scrap beyond the aforesaid limit of 85% without the approval of Member (IR-Operations), FBR.

The FBR said that Rs 300 per kg of Federal Excise Duty on un-manufactured tobacco has been reduced to Rs 10 per kg. However, the supervision of GLTs as prescribed under the Federal Excise Rules, 2005, as amended vide SRO 1149(I)/2018 dated 18.09.2018 shall continue. Field formations, particularly RTO Peshawar, are requested to ensure proper monitoring and documentation of tobacco through GLTs.

In order to discourage sale of duty-not-paid cigarettes, a new clause (d) has been inserted in section 19. The sale of cigarette below the printed retail price is now an offence and shall be penalized under sub-section (2) of section 19. Field formations are advised to take necessary action without causing harassment.The FBR said that the rate of sales tax on services by call centres was 18.5% at serial number 41 of the Schedule. This rate was at par with rate of federal excise duty on telecom services. Since rate of FED on telecom services has already been reduced to 17%, the rate for call centre services has also been reduced to 17%.

The definition of cottage industry in section 2(5AB) has been modified to make it more robust and infallible. The annual turnover threshold has been reduced from Rs 10 million to Rs 3 million and three new criteria have been added in the said section. To qualify as cottage industry, all the four conditions will have to be fulfilled. The field formations should ensure registration of industries that do not fulfill any of these criteria, the FBR said.

A new condition (e) has been added to the existing definition of ‘Tier-1 retailer’ under section 2(43 A) of the Sales Tax Act, 1990. Now, a retail shop having area more than 1000 square feet shall also fall under tier-1 and shall be liable to discharge its liability under standard regime. Field formations are requested to ensure registration of such retailers and payment of due tax from them.

Taxation

The Federal Board of Revenue (FBR) Wednesday directed the Collectors of Customs to apply retail price taxation on imported goods and ensure that the declared retail prices are duly printed and sales tax is charged on the basis of such declared retail price on imported items.According to the FBR’s budget instructions (2019-20) issued to the field formations here on Wednesday, the locally manufactured goods specified in Third Schedule are already chargeable to sales tax on the basis of retail price. Now, through amendment in section 3(2)(a), retail price taxation has also been made applicable to imported goods. The importers are required to print the retail price in the manner prescribed in the aforesaid clause and such goods shall be assessed on the basis of declared retail price and not on the basis of customs value under section 25 of the Customs Act, 1969. All MCCs are requested to ensure that the declared retail prices are duly printed in the prescribed manner and that the sales tax is charged on the basis of such declared retail price.

The FBR said that the section 23, relating to issuance of invoices and particulars to be specified therein, has been amended to provide that in case of supplies to un-registered persons, their NIC or NTN number shall be specified in invoice.

The caveats, provided therein, are as under:

The NIC or NTN shall not be required in case of supplies made by a retailer where the transaction value inclusive of sales tax amount does not exceed Rs 50,000 and the sale is being made to an ordinary consumer buying goods for his own consumption and not for the purpose of resale or processing.If it is subsequently proved that NIC provided by the purchaser was not correct, liability of tax or penalty shall not arise against the seller, in case of sale made in good faith; and the condition of providing NIC or NTN shall be effective from 1st August, 2019.

The FBR has further directed field formations that the rate of the Federal Excise Duty (FED) on ghee and cooking/edible oils has been enhanced to 17 percent and FED shall be payable on the basis of retail price on products sold in retail packing.

The FED on ghee and edible oils was payable at 16 percent in sales tax mode. However, payment of Rs 1/kg on input oils spared the manufacturers of any further payment against value addition. In case of input seeds, payment of Rs 40 per kg discharged the manufacturer’s liability on value addition. In case of solvent extraction units, need to apportion input taxes was also done away with. This regime has been abolished. SRO 24(I)/2006 dated 07.01.2006, SRO 507(I)/2013 dated 12.06.2013, SRO 508(I)/2013 dated 12.06.2013, and SRO 68(I)/2006 dated 28.01.2006 have been rescinded. FED of Rs 0.40 per kg of oilseeds, as at Serial number 54 of First Schedule has also been withdrawn by omitting this serial.

Other salient features of the change are: The rate of FED on ghee and cooking/edible oils has been enhanced to 17 percent. In case of products in retail packing FED shall be payable on the basis of retail price. The refund on export of these items, as made on or after 1st July, 2019, shall be paid on the basis of actual excess of input tax under the Sales Tax Rules, 2006 and not the basis of fixed rate notification, FBR added.
The FBR further directed the formations that the provisions relating to 3 percent value addition tax on imported goods have been transposed from the special procedure rules to the newly inserted Twelfth Schedule and necessary enabling amendments have been made to sub-section (2) of section 7A.

Earlier exclusions from 3 percent tax have been maintained with following differences:

(i) Earlier manufacturers importing goods for in-house consumption were excluded from this levy. Now, all raw materials and intermediary goods meant for use in an Industrial process which are subject to customs duty at a rate less than 16 percent ad valorem under First Schedule to the Customs Act have been excluded, whether imported by manufacturers or commercial importers.

(ii) Earlier only those petroleum products, imported by OMCs, were excluded whose prices were regulated. Now, all petroleum products imported by OMCs excluded.

(iii) Cellular mobile phones or satellite phones have been added to exclusions:
(iv) In view of withdrawal of exemption on gold and silver, in unworked condition, the exclusion from 3 percent tax has been provided to these items.