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Checking misuse: FBR mulls restricting ST registration to ‘manufacturers’

Checking misuse: FBR mulls restricting ST registration to ‘manufacturers’

ISLAMABAD: The Federal Board of Revenue will restrict sales tax registration to the category of ‘manufacturers’ in different sectors specifically poultry farms, dairy farms, pharmaceutical companies, rice traders/exporters along with vegetable/fruit traders/exporters.

As per details, the FBR is likely to implement major policy decisions in the upcoming budget 2014-15 to check the misuse of sales tax registration within the category of ‘manufacturers’.

The FBR is also planning imposition of certain restrictions on obtaining registration as manufacturer through amendments to the sales tax registration rules from next fiscal year.

During an analysis of sales tax registration, the FBR has detected certain issues that require considered decisions as there are persons engaged in exempt/non-sales taxable activities are also applying and insisting for registration. Similarly these persons are seeking status as ‘manufacturer’ who prima facie does not fulfill criteria for manufacturer.

The classes of businesses in the first category include poultry farms, dairy farms, pharmaceutical companies, rice traders/exporters, and vegetable/fruit traders/exporters. In case of poultry farmers, a policy decision was taken that ”poultry farmers are manufacturers” and thus may be granted sales tax registration as manufacturer so that they may avail the benefit of SRO 727(1)/2011 dated 01.08.2011 on import of machinery. Reportedly, 157 poultry farms were granted registration with status as ‘manufacturer.’ This enabled them to import machinery at concessionary rates, claim refunds against electricity, diesel and other taxable purchases, and avail other benefits. However, it is pertinent to mention that during this period, poultry meat was zero-rated, so the policy could still be justified. After issuance of SRO 501(1)/2013 dated 12-062013, poultry products have become exempt. Under the changed legal situation, poultry farms may no longer be granted status as manufacturer, and the earlier registration status may be changed.

Similarly, the persons making exempt supplies (like rice, fruit and vegetables) and also exporting these goods are claiming registration. The board has ruled in the past that all exported goods be treated as zero-rated. Previously, sales tax registrations have been granted to exporters of rice, fruit and vegetables. As such, it is proposed to continue this practice during the next fiscal year

In the second category are persons who do not fully meet the criteria as ‘manufacturer.’ Such persons do not have industrial electrical or gas connections. Some of them produce applications filed to the electricity distribution companies for such connections, while others claim that they are simply using generators. In certain cases, electrical connections are there, but the electricity bill is much lower than the threshold of cottage industry. They claim that they have not yet started manufacturing activities.