ISLAMABAD: The imposition of 2 percent extra sales tax on consumer items has caused severe problems for the manufacturers and they are finding it difficult, if not impossible, to claim input tax adjustment.
It is to be noted that the Federal Board of Revenue (FBR) through SRO 896(I)/2013, deleted certain items from Third Schedule of the Sales Tax Act, 1990, and in lieu imposed a two percent additional tax on these items to be paid by the manufacturers.
The FBR determined two percent rate on the basis of actual value addition of these sectors from the manufacturers till retail stage. But it has cast a negative impact on claiming input tax adjustment on items falling within the ambit of the extra sales @ 2 percent.
The two percent extra sales tax was levied through vide notification 896(I)/2013 on October 4, 2013 on 11 items earlier included in Third Schedule of Sales Tax Act, 1990, means subject to sales tax payment on retail price. However, on strong reservation showed trade and industry concerned, the FBR deleted these items from the Third Schedule of the Sales Tax Act and instead took alternative measure by including these items in special procedure where extra sales tax @ 2 percent was applied to collect value addition sales tax from single stage.
Meanwhile, experts believe there is an anomaly in the subject as all these items are consumer based items and have been included in Third Schedule of the sales tax on retail/consumer value which had to be revised due to practical problems.
The experts opine that levy of extra sales tax @2 percent is correct but special procedure needs to be modified considering all practical problems to avoid issues for the documented and settled sectors. On one hand, extra amount of sales tax burdens the industry and on one other deprives it to claim input tax credit on it hence hit in both the ways.
They suggest that since input adjustment is a legitimate right and basic principle of value addition sales tax, the FBR should brought immediate amendment to the special procedure. They argued that an option may be provided in the law for supplier of these items who may allow either to operate under special procedure or under normal value addition base regime. Secondly, supplies to other than end consumer particularly to persons registered as industrial concern be allowed without application of extra sales tax with input tax adjustment facility to avoid such anomaly.
