ISLAMABAD: Local industries have raised a legal question whether they have been allowed to import plant and machinery for their own use without payment of Minimum Value Addition Sales Tax (MVAST) after changes through Finance Act 2019, Business Recorder reported.
A leading Karachi-based sales tax expert told Business Recorder that the Federal Board of Revenue (FBR) needs to clarify the applicability of MVAST including its application on import of plant and machinery. The situation needs to be clarified as the customs department is not charging MVAT from commercial importers.
As per the recent Finance Act, 2019, the then applicable Rule 58B [sales tax minimum value addition tax (MVAT)] has been transposed into Twelve Schedule of the Sales Tax Act, 1990. As per Rule 58B, import by manufacturers for in-house consumption was excluded from the levy of minimum value addition sales tax.
As per the newly inserted 12th Schedule, MVAST @ 3% is applicable on all imports except for “raw material and intermediary goods subject to custom duty of less than 16%”. From this, it appears that MVAST is also applicable on import of plant and machinery by industry for its own use.
However, technically, MVAST is levied to collect minimum sales tax on subsequent margin (value addition) of imported goods. Considering that no value addition [for subsequent sales] is carried out on imported plant and machinery by industry, therefore, principally, MVAST should not be levied on imported plant and machinery.
At the time of filing of GD for import of plant and machinery, the question arises whether it is legally allowable for industries to import plant and machinery for its own use without payment of MVAT.
Another tax expert explained that while transposing the special procedure Rule 58-B into the Sales Tax Act, the budget-makers may have made some technical mistakes. Therefore, the FBR needed to bring an amendment in relevant law while approving the Bill into Finance Act. The intention and application of the law are though not yet clear.
Earlier the MVAST was chargeable to commercial importers whereas manufacturers were excluded and same understanding is provided under recently issued budget instruction where according to the relief measure, they claimed, the exclusion/ relief are extended to petroleum product and mobile phone, otherwise the law was only transposed. The budget instruction seems more logical because there was pending litigation on this issue and it seems the legal constraint has now been removed, tax expert explained.
On the other hand, plain reading of the amended legal position suggests, the MVAST is chargeable to all sorts of imports (without any distinction of importer or manufacturer) excluding the raw material and intermediary goods used for an industrial process having duty structure of less than 16%, which means there is no distinction between importer/manufacturer. The MVAST is equally chargeable or not chargeable subject to certain types of imports.
Considering the current conservative approach of the government and apparent intent to discourage imports, tax experts understand the board might intend to:-
- i) Transpose the rule into the Act to strengthen their legal position on MVAST.
- ii) Expand the scope of MVAST on import of finished goods by the manufacturer as well.
iii) Exclude petroleum product and mobile from MVAST.
“The benefit of industrial process claiming at customs stage by commercial importers may not be the intention of the board though according to the best of our information, Customs department is not charging MVAT to commercial importers,” the tax expert said.
The matter needs to be taken up with the board to seek clarification of the applicability of MVAST including its application on import of plant and machinery, they added.