03 April 2013

Pakistran Shipbreaking: Deferred payment facility withdrawn

KARACHI: In a desperate move to enhance revenue collection by the end of the fiscal year, the Federal Board of Revenue (FBR) has eliminated deferred payment facility and directed Pakistan Customs not to clear shipbreakers’ consignments without sales tax payment and other government dues.

Earlier, the shipbreaking industry enjoyed the facility of deferred payment and paid government dues after production and at the time of selling.

The FBR withdrew the facility by issuing a statutory regulatory order (SRO), saying that the shipbreakers would pay sales tax at the rate of Rs5,862 per metric ton of re-rollable scrap supplied by them at the time of import. The quantity of re-rollable scrap would constitute 70 percent of the total light displacement tonnage (LDT) of the ships imported for breaking.

Prior to this SRO, the shipbreakers were required to clear their sales tax liabilities in respect of ships weighing up to 10,000 LDT within four months, while in case of ships weighing more than ten thousand LDT, within eight months from the date of filing of goods declaration.

The sales tax liability was to be discharged by the shipbreaker either on completion of clearance of goods obtained from breaking of vessel or within the maximum time period allowed as aforesaid, whichever was earlier.

The latest SRO is one of those notifications issued by the FBR to enhance the revenue collection by end of the current fiscal year. The FBR provisionally collected Rs1,107 billion during the first eight months of the current fiscal year and require further Rs1,083 billion in the remaining four months.

The shipbreakers strongly protested the FBR move, saying it would further threaten the survival of the industry.

They said that the FBR had already increased the income tax rate from one percent to five percent at the import stage for the industry last month.

Dewan Rizwan Farooqui, chairman of Pakistan Ship Breakers Association, said that the industry had paid Rs15.5 billion during the last four years under the heads of sales and income taxes.

Despite the fact, the sales tax for the industry was enhanced to Rs5,862 per metric ton from Rs4,840 in the Federal Budget 2012. On an average, this increase in the sales tax works out to be around 23 percent, he said.

The steel-melters were paying sales tax at the rate of Rs5,600 per metric ton, which has been reduced to Rs3,200 per metric ton in the last budget, which is a huge incentive of 43 percent, the chairman said.

“Due to this incentive, the national exchequer suffered a loss of around Rs12 billion per annum.

He demanded the FBR to restore ship-breaking industry in the special sales tax procedure at par with the melting industry and the sales tax for ship-breakers should also be reduced to Rs3,200 per metric ton instead of Rs5,862 per metric ton.

Earlier, in a letter to the revenue body, the shipbreakers association said that since 1994 ship-breakers were paying income tax at one percent at the import stage on C&F value of scrap vessels that was treated as full and final liability.

The FBR on June 21, 2012 had directed all its Inland Revenue departments for deduction of withholding tax by re-rollers on purchases made from shipbreakers under section 153 of the Income Tax Ordinance 2001.

The association held a meeting with the senior member and FBR chairman and tax authorities agreed to the association’s proposal to pay a total tax at 2.5 percent under section 148 and 153 as single tax at the import stage.

The association informed the FBR that the melting industry, at present, is liable to pay only one percent income tax, while the shipbreakers are made to pay five percent income tax (five times more in comparison), which is a serious anomaly and unjustifiable at all.

The FBR has also been informed that shipbreaking is the only revenue generating business, employing local labour in the least developed province of Balochistan where the law and order situation does not need any further comment.

Shipbreakers have struggled to make this venture viable in the absence of electricity, gas, water, sewage and above all the dilapidated conditions of roads. The association should be allowed to pay income tax / withholding tax (merged as a single tax) at 2.50 percent under sections 148 and 153 as the full and final liability, they said.

Besides, the association demanded the FBR to withdraw the latest SRO regarding elimination of deferred payment.

Source: The News. 29 March 2013

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