FBR advised to impose sales tax on manufacturers of food products

KARACHI: The Federal Board of Revenue (FBR) advised to impose sales tax on manufacturers of food product, sources said.
The Member Inland Revenue has advised the revenue authorities that the manufacturing of food did not fall under the head of services. Therefore, it should be subject to sales tax.
A director at the Directorate of Training, Inland Revenue presented a strong case against it, saying supplying cooked food is not providing services. “The cooked food is included in the goods under the Sales Tax Act, 1990.”
The goods included every kind of movable property other actionable claims, money, stocks, shares and securities,” said a letter sent to the FBR by the tax consultant.
“All goods are liable to sales tax unless exemption is provided,” it added.
The FBR issued a letter in August 2011 of clarification regarding exemptions and termed serving of cooked food as services not liable to tax either under the tax laws.
The services delivered by the marriage halls are not taxable either under the Federal Excise Act, 2005 or under the Sales Tax Act, 1990.
These services fall under Chapter 98 of the Customs Tariff.
However, serving cooked food, ie, supplying tangible movable goods is certainly not included in providing services. Items, which can be considered as prepared foodstuff are scattered throughout in the Customs Tariff. For the purposes of the sales tax the cooked food is actually included in goods as defined in the Sales Tax Act, 1990, the tax consultants added.
The FBR has been informed that exemption is only allowed in cases where breads are prepared in tandoors and bakeries, vermicellies, nans, chapattis, sheermal, bun and rusk, etc.
The exemption is also provided to the foodstuff cooked or prepared in-house and served in messes run on the basis of mutuality and industrial canteens for workers.
A similar exemption is granted to the foodstuff and other eatables prepared in the flight kitchens and supplied for consumption on board in the local flights.
“Apart from these exemptions there is no other exemption for the cooked food,” according to the letter sent to the FBR.
“Therefore, it is submitted that the supply of the cooked food is not service and is liable to sales tax,” it added.
The FBR has also been informed that besides sales tax issue the cooked food is also subject to special excise duty (SED).
“The SED was initially introduced at one percent, which was enhanced to 2.5 percent on March 3, 2011. Later, it was abolished through the Finance Act, 2011.”
It concluded that the supply of the cooked food is still liable to sales tax as the law exists today and that it was liable to SED up to June 30, 2011.