FBR Initiates a New Campaign - Sales Tax on Branded Bread
Saturday, January 22, 2011
The Federal Board of Revenue (FBR) has found a via media after failure to enact Reformed General Sales Tax (RGST) and withdraw exemption from sales tax on daily household items. Its subordinate officers have initiated a campaign to levy sales tax through issue of notices on such items which were treated as exempt in the past.
It may be recalled that FBR, through a notification has already withdrawn the exemption from 3.5 percent withholding tax on the purchase of agriculture produce such as flour, sugar, pulses, ghee or other commodities in which agriculture produce is used as a raw material from 1st January 2011.
FBR has issued notices to leading manufacturers of bread in the country informing them the supply of bread made by them is taxable and they should provide information regarding the sales tax and federal excise tax being paid by them.
One of the such notices confronts a leading manufacturers as under: "whereas the Sixth Schedule prescribed under section 13 of the Sales Tax Act 1990 exempts the supply of various goods subject to such conditions/limitations as specified there.
Note 1 to the sixth schedule states that exemption shall be admissible on the basis of description as mentioned in column 2 of this schedule that cannot be extended beyond its express description/meaning. Under serial No 7 of Table 2 of the sixth schedule to the Sales Act 1990, "Breads prepared in tandoors and bakeries" are exempt from tax. The exemption available for bread, is specific/conditional in nature and not in general for all kinds of breads and restricted upto the extent of those breads which are prepared in tandoors and bakeries only.
Intended benefits is for lower strata of society and rest of those breads prepared through industrial/automatic plants having brand name/trademark with extensive marketing that creates goodwill in the open market for a company that owns the product of specific name/brand or trademark remain out of the purview of said exemption and are liable to the taxed. As data available with this office is not indicative of payment as to the aforesaid levy hence if you are discharging your tax liability according to the above mentioned provision of sales tax/federal excise law then this office be intimated along with documentary evidence failing which matter will be proceeded further as per law on the subject"
Talking to this scribe tax experts criticised the FBR officials for issuance of notices by misconstruing the relevant law against the intention of the legislature and in sheer disregard of its impact on the prices of essential items and social stability. Shahid Jami, a tax expert at Tax Forum opined that sale of bread is exempt as per Sr. No 7 of Table 2 of the Sixth Schedule and that it does not make any difference whether it is prepared manually or on automatic plants.
"Essential ingredient of the exemption is that ultimate product is exempt to be used by the ultimate consumer", he added. "Generally, public is not concerned as to how breads are prepared, they are only concerned whether the specific item being purchased by them includes sales tax or not". Wherever breads are prepared, they are known as bakeries irrespective of the fact that the same are prepared manually or through automatic plant. In this view of the matter factories and automatic plants fully fall within the ambit of bakeries, Jami argued.
Tracing background of Sixth Schedule of the Sales Tax Act, 1990, Jami pointed out it was inserted by Finance Act 1996 and later on substituted by Finance Act 2005. Before its substitution, the exclusion of bread names and trademarks were specifically mentioned against various items, while nothing was endorsed against supply of breads. From the foregoing it is clear that brand names and trademarks were neither excluded from the substituted schedule nor in the present one. It is, therefore, concluded that breads prepared under any mechanism are exempt from the levy of sales tax.
Jami further argued that preparation of breads through automatic plants is very much hygienic and attracts the preference of the consumers. If sales tax is applied on the breads prepared by automatic plants then these manufacturers cannot compete in the market with the manufacturers of breads prepared manually. The application of sales tax on breads prepared under brand names would surely ruin the industry and this situation is neither in the interest of manufacturer nor in the interest of public. He urged the FBR to guide the field formations by issuing appropriate clarification.
Specialists in recrimination art
Specialists in recrimination art
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Witholding Tax On Purchase of Agri Produce
Monday, January 17, 2011
Federal Board of Revenue (FBR) has clarified news reports published in a section of the press recently regarding the exemption of 3.5% withholding tax on purchase of agricultural produce, withdrawn through issuance of Board’s SRO 1161(I)/2010 Dated 31st December 2010. The issue needs clarification for the facilitation of general public, as follows:
i) Section 41 of the Income Tax Ordinance 2001 provides exemption to ‘agricultural income’ on sale/supply of agricultural produce by a cultivator/grower. Similar exemption was also available in the Repealed Income Tax Ordinance 1979. Earlier through Clause (v) of Board’s SRO 586(I)/91 Dated 30th June 1991 persons receiving payments from a company or an Association of Persons (AOP) having turnover of fifty million rupees or above exclusively for the supply of agricultural produce which has not been subjected to any process other than that which is ordinarily performed to render such produce fit to be taken to market, was exempted from deduction of withholding tax @ 3.5%
ii) Through Finance Act 2010, the definition of ‘prescribed persons’ was amended and “an individual having turnover of Rs.50 million rupees or above” was added in the list of withholding agents, to deduct withholding tax on sales/supplies [section 153(1)(a) of the Income Tax Ordinance 2001];
iii) Afterwards, Board had received various representations requesting to include “an individual having turnover of Rs.50 million rupees or above” in clause (v) of SRO 586(I)/91 of 30th June 1991;
iv) SRO 1161(I)/2010 Dated 31st December 2010 was issued with approval of competent authority, wherein following amendments were made in clause(v) of SRO 586:
- a) The word “persons” was replaced with the words “growers/producers of agricultural produce”, in order to restrict exemption to actual growers/cultivators as prescribed in the law; and
- b) The phrase “an individual having turnover of Rs.50 million rupees or above” was added in the list of prescribed persons, who will not deduct withholding tax from growers on sale / supply of agricultural produce.
It is therefore clarified that exemption of withholding tax on sale / supply of agricultural produce by a grower / cultivator is still intact, and SRO 1161(I)/2010 Dated 31st December 2010 has aligned the whole situation in line with the exemption on agricultural income by a grower, as provided in section 41 of the Income Tax Ordinance 2001.