PESHAWAR: In a significant development following the merger of the erstwhile Federally Administered Tribal Area (FATA) with Khyber Pakhtunkhwa, manufacturing units in the region have been granted a five-year immunity from sales and income tax. This exemption has led to the establishment of numerous industrial units, particularly in the steel, fabric, and tea sectors.
However, it has come to light that the tax exemptions granted to these units are contingent upon certain conditions, such as the verification of the manufacturing facility’s annual production capacity and input/output ratio. Despite these requirements, industrial units in the former FATA/PATA regions have been importing raw materials without proper checks on their in-house consumption capacity, raising concerns over potential misuse of the exemptions.
The Federal Board of Revenue (FBR) has implemented mechanisms for the transportation of imported industrial inputs and the issuance of consumption certificates. Yet, the absence of a specified period for the consumption of these goods has allowed continuous importation without confirmation of actual usage.
Reports indicate that a substantial volume of industrial inputs, especially in the aforementioned sectors, is being imported by both newly established and existing units, exploiting the quota issuance and exemptions without possessing necessary consumption certificates. Instances of raw material seizures by Anti-Smuggling units suggest widespread abuse of the facilities provided to industries in these areas.
Furthermore, finished goods produced by these units appear to be distributed outside the erstwhile FATA/PATA territories without the payment of due duties and taxes. This has resulted in numerous FIRs being filed against various industrial units for rejected consumption certificates. In a twist of irony, the same units have been re-granted quotas and exemptions, leading to legal challenges and the quashing of FIRs by Appellate Tribunals due to inadequate representation by the Revenue Tax Office (RTO).
The Collectorate has been consistently notifying the RTO Peshawar about the status of Post Dated Cheques (PDCs) issued against tax exemptions, urging updates on the issuance or rejection of consumption certificates. Since the transfer of clearances to Azakhel Dryport in March 2021, a significant number of PDCs remain pending, awaiting the necessary certificates.
Authorities are now calling for a thorough examination of the installed capacity of these units by the Directorate General IOCO-IR and RTO Peshawar to ensure compliance with legal and regulatory standards. An official has criticized the Inland Revenue Service (IRS) for failing to uphold its responsibilities, resulting in considerable losses to the national treasury and questioning the efficacy of the IRS’s performance based on sales tax collections at the import stage.