Revamping of Sales Tax zero-rating scheme for exports

GOVERNMENT OF PAKISTAN
MINISTRY OF FINANCE, ECONOMIC AFFAIRS,
STATISTICS AND REVENUE
(REVENUE DIVISION)

Islamabad, the 1st April , 2011.

NOTIFICATION
(SALES TAX AND EXCISE)

S.R.O.283 (I)/2011.- In exercise of the powers conferred by clause (c) of section 4 read with clause (b) of sub-section (2) and sub-section (6) of section 3, clause (b) of sub-section (1) of section 8, clause (a) of sub-section (2) of section 13 and section 71 of the Sales Tax Act, 1990, and sub-section (2) of section 16 read with section 3A of the Federal Excise Act, 2005 and in supersession of its Notification No.S.R.O.509(I)/2007, dated the 9th June, 2007, the Federal Government is pleased to notify the goods specified in column (2) of the Table below under the PCT heading numbers mentioned in column (3) of the said Table, to be the goods on which sales tax shall, subject to the conditions stated in this notification, be charged at the rate of zero percent on the supply and import thereof, or at reduced rate of sales tax of six percent or, as the case may be, at four percent as specified in the said conditions, namely:-

TABLE

CONDITIONS

(a) Textile Sector:-

(i) The facility of zero-rating shall be available to every such person engaged in manufacturing or trading in textile sector (including carpets and jute) who is registered for the purpose of sales tax other than retailer. No tax shall be payable at any stage of the supply chain if goods are sold by a registered person to a registered person till the stage of processing where sales tax shall be charged as specified hereunder;

(ii) the benefit of this notification shall be available to registered importers, traders, manufactures and exporters. In case where a commercial importer sells any imported goods to unregistered person, he shall charge and pay sale tax @ 6% of value of supply, if the goods are usable in textile sector up to the stage of spinning including the product of spinning such as yarn and its by-products, whereafter such importer shall charge and pay sales tax @ 4% of value of supply;

(iii) no sales tax shall be payable at ginning or man-made and synthetic fiber manufacturing stage;

(iv) in case of registered manufacturers importing their inputs or acquiring their inputs from commercial importers or registered manufacturers, such manufacturers shall charge and pay sales tax @ 6% of value of supply only at the spinning stage, i.e. yarn and its by-products if these goods are supplied to any unregistered person provided that if such goods relate to the stages after spinning, sales tax shall be charged and paid @ 4% of the value of supply;

(v) in case of yarn purchases on payment of sales tax @ 6% of value of supply from spinning mills by unregistered persons i.e. traders or persons engaged in activities like sizing, warping, weaving, intermediary and other ancillary processes etc. before processing of finished fabric, no further amount of sales tax shall be charged or demanded;

(vi) in case of registered persons engaged in providing processing services of any kind in respect of textile goods, such person shall charge from the person who owns the goods but is not a registered person, sales tax @ 4% of service charges;

(vii) in case of stages after weaving, if the fabric is sold by a registered manufacturer to an unregistered person, sales tax shall be charged @ 4% of value of supply, if such manufacturer has availed zero-rate facility at previous stages of the production chain;

(viii) at the stage of processing or finishing of any kind of fabric or stitching of such fabric, if any registered person supplies the goods including finished products like finished, dyed/processed/printed fabric, textile apparel, home textile and clothing including garments and all non-woven products etc. to an unregistered buyer, he shall charge and pay sales tax @ 4% of the value of supply; and

(ix) the registered persons who have acquired goods at zero-rate under this notification shall pay sales tax @ 4% of value of supply on their supplies of all kinds of finished products to retailers, regardless of the registration of such retailers.

(b) Leather, Sports & Surgical Goods Sectors:-

(i) Zero-rating facility shall cover the whole registered supply chain covering both imports and local supplies except retail;

(ii) registrations will start from tanneries and manufacturers of surgical and sports goods including the persons engaged in ancillary industrial activities;

(iii) the jobbers working in informal or un-organized sector for individual and specified industrial or like processes prior to manufacturing of leather, surgical and sports goods in tanneries and other manufacturing units shall not be required to be registered provided their annual turnover from service charges does not exceed Rs. 5 million or their annual utility (electricity, gas and telephone) bills do not exceed seven hundred thousand rupees, and if so exceed, they will be required to be registered; and

(iv) no sales tax shall be charged at any stage of supply for domestic consumption except that where a tannery supplies its product to any un-registered person other than retailer, it shall charge and pay sales tax @ 6% of the value of supply and where any finished product of leather, sports or surgical goods is supplied to any un-registered person by a manufacturer other than tannery, such manufacturer shall

charge and pay sales tax @ 4% of the value of supply. All supplies of finished goods made to retailers shall, however, be charged to sales tax @ 4% regardless of their registration.

(c) Miscellaneous:-

(i) Benefit of zero-rating or reduced rate shall be admissible only if the goods covered in this notification are usable and are used in the aforesaid sectors for trading and manufacturing purposes. No other sector or industry shall be entitled to the benefit of this notification;

(ii) no input tax adjustment or refund shall be admissible to any registered person against his liability of sales tax @ 6% of the value of supply, or as the case may be, of @ 4% of value of supply. However, admissible refund in case of capital goods, maintenance parts, lubricants, packing materials or other sector-specific used inputs, not covered under this notification, whether imported or acquired locally, shall be paid to such person against zero-rated supplies in one week of filing of the complete claim;

(iii) the registered persons of these sectors shall be entitled to acquire electricity and gas at zero-rate in the manner prescribed by Federal Board of Revenue;

(iv) subject to miscellaneous condition (ii) above, where at any stage of registered supply chain, no liability to charge and pay sales tax accrues under this notification, the supply at such stage shall be deemed to be a supply chargeable to sales tax at the rate of zero percent and reflected on the tax invoice accordingly;

(v) no special excise duty shall be charged on the goods of the said sectors as mentioned in the aforesaid Table whether these are chargeable to zero-rate or to reduced rate of tax and special excise duty shall be treated as exempt;

(vi) the persons registered after the issuance of notification but not after 30th day of June, 2011 in case of persons already engaged in businesses in the above sectors, shall not be questioned about their past transactions in their businesses for the purpose of the Sales Tax Act, 1990 or as the case may be, the Federal Excise Act, 2005 provided that no refund of any amount of tax or duty already paid or recovered shall be admissible to any person on account of this condition;

(vii) in case of commercial importers registered after the issuance of this notification, benefit of this notification shall be available only if they satisfy the Collector of

Customs at the time of import of their first consignment about their business and financial soundness on the basis of a certificate from the bank(s) in which they have opened and will operate their business account(s);

(viii) in case of persons already registered under the Sales Tax Act, 1990, benefit of this notification shall be available only if they are shown as active in active taxpayers list (ATL) on the website of Federal Board of Revenue and have done a declared business activity in any of the tax periods during the last twelve months; and

(ix) the composite units including wholesalers covering supplies upto retail stage shall pay sales tax @ 4% of value of supply and shall not pay any other amount of upfront tax on their retail sales under any other scheme for retailers under the Sales Tax Act, 1990 or notifications issued or rules made thereunder.

2. This notification shall take effect on and from the 15th day of March 2011, provided that any liability accrued under this notification and as a consequence of the said supersession shall take effect with immediate effect.

[C.No.1(140)C(RGST)/Textile/2011]

(Khawar Khurshid Butt)
Additional Secretary