ISLAMABAD: The Federal Board of Revenue (FBR) Intelligence and Investigation (I&I) Department in Karachi has identified potential of Rs84 billion sales tax collection from the mines and minerals sector in Sindh, it emerged on Monday.

The detection came to surface, when the Directorate of I&I Karachi was examining records regarding income tax and sales tax payments to be made by the mines licence holders in Sindh on the extraction and supply of minerals including silica sand, gravel, morum, reti, bajri, crushed stone, bauxite, laterite and marble.

It was revealed in the report that most of the mine lease holders are non-filers and not registered for the purpose of income tax and sales tax. This exercise will bring unregistered mine holders into the tax net.

As per initial assessments, the Director General Mines and Minerals Karachi has collected Rs407 million as royalty against the extracted/carry away quantity of 51m metric tonnes of silica sand, morum, reti and marble from mine lease holders between July 2016 to June 2019.

The average rate of these minerals is Rs6,000 per metric tonne. The directorate estimates the potential of sales tax collection to the tune of Rs52bn at the rate of 17 per cent that could be collected on the sales of over 50m metric tonnes minerals. The calculations are based on draft Rule 2311 of the Income Tax Rules 2002 and market price surveyed.

Currently, Sindh is collecting royalty at the rate of Rs8 per metric tonne from the lease holders on the extraction and carry away minerals from lease areas.

An official source told Dawn that the report was sent to the FBR for necessary action. “We have identified a potential sector which is not under tax net,” the official said, adding it is simply an issue of enforcement.

The revenue impact will enhance when the remaining amount of royalty collection is reported by DG mines and Minerals Sindh. Similarly, the collection of sales tax from minerals in other three provinces — Punjab, Balochistan and Khyber Pakhtunkhwa — is also negligible.

“The effective enforcement of sales tax laws can lead to huge collection,” the official said, adding that the government did not need to impose additional revenue measures but to plug revenue leakage from the mineral sectors.

The directorate has recommended several measures to the FBR for implementation.

It was recommended that the Regional Tax Office-III, Karachi may obtain information from office of DG Mines and Minerals Karachi regarding mines lease holders on point of jurisdiction. The mines holders should be registered for sales tax.

In the first step, the DG Mines Karachi is required to be made withholding agent under Section 236A of the Income Tax Ordinance. It is also proposed to invoke the Section 40B of The Sales Tax Act, 1990 at the exit check posts/check points of mines lease area.

“This will improve enforcement and will also monitor the actual quantity of minerals dispatches, extracted, carry away from mines area to collect the actual tax,” said the report.

Published in Dawn, February 25th, 2020