Some sectors get relief from advance tax
Over the past year, manufacturers have had to pay advance tax (AT) when importing raw materials that resulted in increased operating costs while also blocking working capital for various companies like mobile phone and refrigerator makers.
Although many sectors are exempted from value-added tax at the manufacturing stage, the companies had to pay 5 per cent as AT and wait for a refund after the transaction was completed.
Now the manufacturers who enjoy VAT exemption at the manufacturing stage will no longer be needed to pay AT, a form of VAT which was levied on imports at the beginning of the current fiscal year, said an official of the National Board of Revenue yesterday.
"We have withdrawn the AT as the manufacturers do not have the scope to adjust the paid tax. They can only wait for refunds," he said.
The official also believes that the move will help relieve some of the monetary burden faced by the manufacturers of air conditioner and freezer products, cars, elevators, and pharmaceuticals when importing raw materials.
"As such, they no longer have to wait for refunds," he said, asking not to be named.
The revenue authority introduced 5 per cent AT under the new VAT law on imports of goods from this fiscal year in order to encourage businesses to keep records and accounts properly.
The idea is to widen the VAT net and curb money laundering through trade misinvoicing.
The new AT will be adjustable with the total payable VAT in their returns while the excess value will be refunded to the taxpayer, the NBR official said.
But businesses, particularly those dependent on the domestic market, said that the new AT will increase operating costs as the taxpayer has to bear the interest on bank loans taken to make up working capital deficits as the process to get VAT refunds is painstakingly slow.
Since it came into effect on Friday, various sectors have already demanded the removal of AT. In response, the NBR reduced the AT rate to 4 per cent for the import of industrial raw materials.
The revenue authority, however, attached some conditions for firms to enjoy the exemption from AT.
Jakaria Shahid, managing director of Edison Group that assembles Symphony mobile phones, praised the initiative. "This will play a positive role in industrialisation," he said.
"This is a good move for the industry. The funds will not remain blocked anymore. It will be beneficial for the industry," said Kamruzzaman Kamal, director for marketing at Pran-RFL Group, which manufactures refrigerators locally.
However, sectors where duty-free import benefits for raw materials and VAT exemptions have been offered to facilitate industrialisation will not have to pay AT during imports, according to an NBR notification issued last week.
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