ISLAMABAD, Aug 18: The Central Board of Revenue has clarified zero rating of sales tax on import and local supply of raw materials and capital goods. According to a sales tax ruling No 1 issued here on Wednesday, the CBR clarified that under SRO527 of 2005, raw materials, components, sub-components and parts, as are imported or purchased locally for use in the manufacturing of capital goods shall be charged to sales tax at the rate of zero per cent.

However, this would be attached with condition that the person procuring or importing zero-rated raw materials, components, etc., is registered as a manufacturer of capital goods and such raw materials, components, sub-components and parts are imported or purchased exclusively for use in the manufacture of such capital goods.

The collectors, are therefore, advised to ensure that the importer/buyer is a bona fide manufacturer of capital goods and that the inputs imported/ purchased by him are exclusively used in the manufacture of capital goods.

The CBR further said that parts, components, sub-components and raw material used in the manufacture of plant and machinery (capital goods), supply of which is zero-rated under SRO530 of 2005, shall qualify for zero-rating of sales tax on import as well as on local supply stages in terms of the said SRO, whether or not the import of such plant and machinery as is manufactured there, from carries statutory rate of more than five per cent or is not regulated by any concessionary notification of customs.

It was further clarified that condition (b) of SRO527 of 2005 shall apply in those cases only where import is regulated through any concessionary or survey-related notification issued under section 19 of the Customs Act, 1969.

However, if import is not regulated by any such notification, the same shall still be charged to sales tax at zero per cent, if it otherwise qualifies for sales tax zero-rating under SRO527 of 2005. In other words, the condition (b) of the said notification shall not apply in case of those manufacturers of plant and machinery whose quantitative requirements are not determined by form.

The collectors are advised to give necessary guidance to the officers working under their control accordingly. This ruling is issued in super-cession of all previous clarifications concerning SRO527 of 2005 issued by the CBR from time to time.