KARACHI: The Federal Board of Revenue (FBR) has clarified that with effect from July 01, 2017, all commercial imports of fabric are subject to sales tax of 6.0 percent along with value addition tax of 2.0 percent under the provision of SRO 584(1)/2017, thus putting a check on misuse of SRO 1125(I)/2011 by commercial importers of fabric.
Fabric importers are considered a mafia that has been involved in large scale wrongdoings including smuggling, mis-declaration, misuse of concessionary SROs etc.
Collector Appraisement West Shahnaz Maqbool approached FBR seeking clarifications regarding misuse of SRO 1125(I)/2011. In response, FBR examined the issue of misuse of zero-rating on import of fabric by commercial importers.
FBR clarified that as per SRO 1125(1)/2011 as amended by SRO 491(1)/2016, commercial imports of goods useable as industrial inputs, specified in Table-I including fabric were subject to sales tax zero percent along with zero percent value addition tax within the meanings of sub-serial (ii) of S. No. I of Table-II of the SRO.
FBR notes the use of fabric as industrial input particularly in garments industry cannot be denied. Therefore, commercial imports of fabric attracted sales tax at the rates specified above. It is clarified that in order to be eligible for zero percent sales tax and zero percent value addition tax rates at the import stage, the actual use of the fabric as industrial input is not required, it only has to be “usable” as industrial input, which is already mentioned it potentially can be used as industrial input.
Supply of finished fabric, including the imported fabric to manufacturer of five sectors covered by SRO 1125(1)/2011 also attracted sales tax zero percent under sub-serial (vi) of S. No. I of Table-II of the SRO whereas supplies of finished fabric, including the imported finished fabric, to retailers, end consumers, etc. were chargeable to sales tax at 5.0 percent within the meanings of sub-serial (vii) of S. No. 1 of Table-11 of the SRO.
Through amending SRO 584(I)/2017 commercial import of fabric has been specifically subjected to sales tax 6.0 percent along with value addition tax of 2.0 percent whereas rate of sales tax on supply of fabric has also been enhanced from 5.0 percent to 6.0 percent.
FBR noted interpretation of the Collectorate that benefit of zero percent sales tax on commercial import of fabrics is limited only to those fabrics which are supplied to industrial sector of five export oriented sectors is not correct. In no case, it can be ascertained at the import stage that the client/customer of the commercial importer, importing fabric, would he a retailer or a manufacturer.
The intention of the SRO was that sales tax should be charged zero percent on commercial imports of fabrics and in case of subsequent supply to traders or end consumers, sales tax was to be collected at 5.0 percent.
It is clarified that all commercial imports of fabric were subject to sales tax zero percent along with value addition tax zero percent. However, with effect from July 01, 2017, these are subject to sales tax at 6.0 percent along with value addition tax 2.0 percent under the provision of SRO 584(1)/2017.