KARACHI: The Federal Revenue Council (FBR) aims to generate up to Rs15 billion in additional sales tax revenue by setting limits on production waste announced by producers, officials said on Saturday.
To prohibit waste and treat it as a sale, FBR has put in place a rule whereby companies’ reported wastage of raw materials equates to average wastage in the sector concerned.
Officials say large entities engage in practices that claim a significant percentage of production wastes and in some cases claim as high as 40 percent.
Through the Finance Law, 2020, new amendments were introduced to the Sales Tax Law, 1990, in which the fixation of waste would be determined by sector.
FBR in a circular issued on August 6, 2020, stated, “The changes were made to remove the discretion of the jury officers and for similar treatment throughout the board regarding allowing / prohibiting input tax credits for input items wasted during normal business processes, as long as the credit exceed the benchmarks / limits set by FBR ”. FBR on October 1, 2020 issued SRO 938 (I) / 2020 to inform the rules for implementing sectoral fixation of waste.
As a rule, the FBR Input-Output Coefficient Organization (IOCO) has been mandated to improve the limits of waste for an economic sector. “Where the level of waste has been corrected and notified by the board [FBR] Under this rule, no registered person has the right to take input tax adjustments with respect to wasted input above and above the limit set and notified by the board, “the guidelines said.
A senior FBR official said at the time of budgeting for the 2020/21 fiscal year policymakers were expecting around Rs12-15 billion in additional revenue by streamlining this process.
FBR has detected a large variant of waste claimed by manufacturing companies in various sectors including tobacco, steel, vegetable oils, food, sugar, cement, pharmaceuticals etc., the official added. He further said the wastage claimed by some industrial issues was well above international benchmarks.
The entire exercise will help FBR reduce the size of the refund, he said.
“Once the benchmark for wastage is set, FBR can add waste to sales and subtract the same amount from the plaintiff’s refund amount,” the official added.
Zeeshan Merchant, President, Karachi Tax Bar Association (KTBA) said that it is almost impossible to compare waste because of the different production environments of different companies in the same sector.
“If FBR sets limits on waste for a particular sector, the implementation stage will be more difficult because companies from the same sector can use machines of different brands, origins and capacities,” he said, adding that such situations led to an increase. in litigation.
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