KARACHI, July 19: The business community has identified a number of anomalies in Customs and Sales Tax rules contained in the budget 2006-07. It has listed these anomalies and the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has sent it in the form of a memorandum to the Central Board of Revenue (CBR) for correction.

The CBR has already set up an anomaly committee in the second week of this month to examine the anomalies arisen out as a result of changes in tariff structure in the current budget.

According to the CBR, the committee is headed by adviser to the prime minister on Finance and Revenue and will have secretary general Revenue Division and chairman CBR as secretary of the committee. It will also include secretary Industries and Production and a representative of the FPCCI.

Many associations and trade bodies have sent the budget anomalies affecting their industries and trade to the government while the FPCCI has sent the memorandum on the basis of information provided by the affected industries.

Meanwhile, president Karachi Chamber of Commerce and Industry (KCCI), Haroon Farooqi told Dawn that the KCCI was also preparing a memorandum on budget anomalies which will be sent to the CBR.

According to the FPCCI memorandum, on Customs side cable and conductors manufacturers have pointed out that the import duty on copper waste and scrap has been made zero rated, while copper cathode is importable at five per cent duty under the existing tariff. Both the items are used for production of copper rod. This is an anomaly and should be removed by levying same rate of duty on both copper waste and scrap and copper cathode.

The import duty on aluminium waste and scrap has been made zero rated while aluminium ingot is importable at five per cent. Both the items are used for production of aluminium rod. They urged the government to apply same rate of duty on both aluminium waste and scrap and aluminium ingot in order to remove the anomaly.

Seafood industry has pointed out that the industry has been allowed duty free import of packing material but the time limit for re-export is one and a half years, which is not considered sufficient. This type of packing material cannot be imported in small quantities hence it is suggested that the time limit for re export of the packing material be extended.

On energy saving lamps, customs duty has been increased to 15 from 10 per cent in spite of the fact the country is facing severe energy crisis. As a thumb rule around 30-35 per cent of electrical energy produced in the country is consumed in the lighting sector. Energy saving lamps consumes 70-80 per cent less power as compared to ordinary lamps. By using energy saving lamps around 20 per cent of power generated can be saved.

Non-woven inter-lining fabric is a finished product and is importable at 15 per cent customs duty while its raw material – acrylic binder – is importable at 20 per cent duty. This anomaly needs to be removed. Knitting machine oil with 10 per cent customs duty has been introduced in the budget despite no item is produced under the said name. While oil, mineral oil, liquid paraffin is used as knitting machine oil and is importable at 20 per cent customs duty.

In pharmaceutical products, coated fabric which is imported in roll form is not a finished item and is used in the manufacturing of first aid bandage. It is recommended that these items should be treated as raw material and not as finished goods in respect of levying duty. Pharma products Optal A, infusion set and PVC mixture have been levied with 20 per cent import duty. The item classifiable under PCT heading 3004.9090 has now been placed under PCT 3004.9060 defined separately as medical ointment and 20 per cent customs duty is being charged. The item should be cleared under PCT heading 3004.9090 importable at 10 per cent customs duty or alternatively SRO 457(I) 2004 be restored.

Customs duty on bandages and dressings should be restricted at 10 per cent in line with the concession available to other imported drugs or to homeopathic and herbal medicines.

SALES TAX: Through an amendment, the financial and operating leases have now been included in the definition of supply. The lease system is now a common source of financing import/acquisition of plant and machinery etc. Sale and buy-back lease will be affected badly by this amendment.

The unregistered financial sector engaged in leasing business would require to be registered with the Collector of Sales Tax having jurisdiction failing which it will be liable to the offence of tax fraud. Failure to get registration would render the sales tax, charged by the manufacturers/importers on the asset being purchased and then leased out by the financial institution, as inadmissible for the purpose of tax credit/refund. It will have a negative impact on the cash flows of the financial sector. This amendment needs to be withdrawn. By virtue of an amendment in Section 8, sub section 1 of Sales Tax Act, the registered person would not be entitled to claim input tax credit if the supplier of the subject goods failed to deposit the related output tax in the government treasury. The amendment is considered highly unwarranted, harsh and unjustified. Debarring genuine buyers from input tax credit could seriously generate litigation between the department and the taxpayers.

According to one additional clause for penalties, a penalty of Rs25,000 has been prescribed for a person who fails to file summary of sales tax and purchases. This is a harsh penalty which does not take into account special circumstances which may prevent the registered persons from doing so. Moreover, justice requires that penalty should only be imposed after giving a fair chance to the registered persons to explain reasons for non-compliance with legal requirement. There is a need to reconsider the provision of penalty, especially in view of Section 8(1) of the Act, which already debars input tax credit if the said summary is not filed by the registered person.

Section 11-A has been substituted with a reworded section. Under the previous section the CBR had powers to recover the principal sales tax without issuance of a show cause if the taxpayer fails to pay the entire tax as shown in his tax return. Through the amendment, the board will be empowered to recover, besides the principal tax the associated default surcharge without issuance of show cause notice to the taxpayer. For collection of such tax and default surcharge the board would be empowered to seal the business premises and attach taxpayers’ business accounts.