Questions and Answers Arising From New Ordinances.
Saturday, March 19, 2011
Question No. 1
Whether or not Yarn sales made on 15-03-2011 in local market to non-exporter customers will also be subject to 17% sales tax as the same had already been dispatched before the issuance of SRO after business hours.
Reply
Zero rating to textile products has been granted through SRO 509(I)/2007. The aforesaid notification has been amended through SRO 231(I)/2011 dated 15.03.2011. The amending notification is effective from the date of its issuance hence the amendment has effect on the supplies made on or after 15.03.2011. There is a hardship for the persons who had made supplies on 15.03.2011 in business hours and at that time no one was aware of the fact that the Federal Government was going to amend the notification, however, since law has its own course, the persons supplying goods on 15.03.2011 shall be liable to pay tax. I would like to draw your attention that in the Finance Bill for the year 2001-2002 presented in the Parliament on 18.06.2001, the rate of further tax [which was applicable on goods supplied to unregistered persons] was enhanced from 1.5% to 3%. These provisions were given immediate effect, however, the persons who had made supplies on 18.06.2001, were facing the same problem as the Bill was presented in the Assembly in the evening hours of 18.06.2001 whereas the supplied had been made at the rate of 1.5% in the business hours on 18.06.2001. While conducting audit of the sales tax record of the registered persons, the auditors made out cases against the taxpayers through which demands of the differential amounts of further tax were raised. Keeping in view the genuine hardship faced by the taxpayers, the Federal Government had to issue SRO 202(I)/2002 dated 04.04.2002 through which it granted exemption of further tax chargeable under section 3(1A) of the Act in excess of 1.5% on all taxable supplies made by the registered persons on 18.06.2001. Unless such an exemption notification is issued in respect of supplies made on 15.03.2011, you would remain liable to pay tax on supplies made on 15.03.2011 irrespective of the fact that the notification was issued after business hours.
Question No. 2
We being manufacturer cum exporter, if sell our yarn to other manufacturer cum exporter who manufactures cloth from the yarn and then exports the same, whether our sale would be treated as zero rated or subject to 17% sales tax. If it is zero rated what should be the required evidence to justify our sale that we actually sold yarn to manufacturer cum exporter who ultimately exported cloth?
Reply
In case you are selling yarn to such a person who is registered as a manufacturer cum exporter, the supplies would be chargeable to zero rating of sales tax. You can retrieve the sales tax registration certificate of the buyer exhibiting that he is registered as manufacturer cum exporter. The buyer would use the yarn in the manufacture of fabric which would be either exported or would be sold in the local market. In case of export, the goods shall be chargeable to zero rating of tax. In case of local sale, if such a sale is again made to a manufacturer cum exporter or exporter, the goods shall be chargeable to zero rating of tax. However if the goods are sold in the local market to a person neither registered as manufacturer cum exporter nor exporter, the goods shall be charged to tax at the rate of 17%.
Question No. 3
We being manufacturer cum exporter, if sell our yarn to other manufacturer cum exporter who exports the same without any processing, whether our sale would be treated as zero rated or subject to 17% sales tax. If it is zero rated what should be the required evidence to prove that we actually sold yarn to manufacturer cum exporter?
Reply
The reply to the first part of the question has been given in above paragraph. The only evidence that the goods are sold to the manufacture cum exporter or exporter, will be the sales tax registration certificate of the buyer.
Question No. 4
What will be the status of Cotton Ginner registered as manufacturer cum exporter & otherwise selling his cotton to manufacturer cum exporter? Whether cotton has also become subject to 17% sales tax.
Reply
Under SRO 509(I)/2007, ginned cotton is also subjected to zero rating of sales tax. In case the ginner supplies cotton to manufacturer cum exporter, it shall be chargeable to tax at the rate of zero percent otherwise it shall be chargeable to standard rate of 17% sales tax.
Question No. 5
If we sell some old machinery for which at the time of its purchase we had paid sales tax @ 15%, whether its sale today after the issuance of SRO 230 will be again subject to 17% or not?
Reply
Zero rating of sales tax on plant machinery and equipment including parts thereof, has been withdrawn w.e.f. 15.03.2011 so any machinery, whether new or old, sold on or after 15.03.2011 has become liable to sales tax at the rate of 17% irrespective of the fact whether you had paid sales tax at the time of its purchase.
Question No. 6
Since zero rating of sales has been withdrawn effective March 15, 2011, therefore, we request you to confirm as if the stock already held and imported at zero rated but sold on or after March 15, 2011 would be subjected to 17% sales tax or not. Till now there is no such circular or clarification from the board on this matter.
Reply
Zero rating of sales tax on plant machinery and equipment including parts thereof, has been withdrawn w.e.f. 15.03.2011. Any supply of these goods on or after 15.03.2011 shall be subjected to 17% sales tax and 2.5% SED irrespective of the fact whether these were imported under zero rated regime.
Question No. 7
Please clarify this increase of Excise duty of 1 to 2.5% for zero Rating sector because as per SRO 509(1)/2007 , sales tax will be charged at the rate of zero rating percent on the supply and import thereof .
Now through SRO 231 (1)/2011, this zero rating of sales tax is there but in a restricted manner, then what will be the applicability of this increase of 1 to 2.5 % FED because when it was 1%, then it was not being applicable. What will be the status in case of textile and leather especially?
Reply
Zero rating of sales tax on textile and leather has been restricted only if these goods after import or domestic production are sold or purchased between persons registered as manufacturer cum exporters or as exporters, for use or utilization in goods meant for export. In case these goods after import or domestic production are sold or purchased between persons not registered as manufacturer cum exporters or as exporters OR for use in goods meant for local consumption, zero rating of sales tax shall not be applicable under SRO 509(I)/2007. When the supply of those goods is out of the ambit of SRO 509(I)/2007, the exemption of SED in terms of Sr. No. 25 of the Table given below SRO 655(I)/2007 shall also be not available to the goods. Some advocates still hold the view that even the goods supplied to persons other than manufacturer cum exporters or exporters OR for use in goods meant for local consumption, become liable to 17% sales tax but those still remain exempt from SED. However, this point of view has to be tested for judicial scrutiny by competent court of law. Before taking any action, it would be advisable to seek categorical ruling from FBR to avoid any future complication.
Labels: advance income tax, Income Tax, Sales Tax
posted @ 10:53 AM,
3 Comments:
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At March 19, 2011 at 5:54 PM,
said...
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As a middleman, how does GST imply on me, as i am a local purchaser/supplier. I would be charged 17%. how would i be able to cover that 17% percent if my respected client is an exporter, cause i wont be able to charge him, and 0% is applied to my client.. make it precise, i am charged 17% becuase i am not an exporter but on the other hand i wont be able to recover that 17% because my client is an exporter. so where would i cover the that cost from ?? would there be a refund from the goverment or would i have to include that tax in my cost price ???
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At February 14, 2012 at 1:58 PM,
Unknown said...
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Dyed Yarn Manufacturers
Gokak Mills places a high premium on employee welfare. The company hospital, residential complex, educational institutions are one of the best in the region. More than half the company's employees were born and educated at these facilities. -
At February 15, 2012 at 1:58 PM,
Unknown said...
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Dyed Yarn Manufacturers
Gokak Mills places a high premium on employee welfare. The company hospital, residential complex, educational institutions are one of the best in the region. More than half the company's employees were born and educated at these facilities.
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