AOA
My question is about payment against imports. We want to import an engineering equipment from Singapore. The price of the equipment is US$ 3,900/-. However, it shall be kept in mind that the exporter wants advance TT for payment.
Now we are not required to open LC because the exporter wants advance payment through TT. So my questions about the above discussion are as follows
1. Is it possible for us (our company) to make TT to Singapore through a private money exchanger?
2. Where I shall deduct withholding tax from the exporter while making TT to him?
3. If I am required by the Income Tax Ordinance to withheld tax from the exporter, what will be the withholding tax rate?
In my view when a person imports goods through L.C., he does not deduct withholding tax from the exporter. But he pays imports duties like income tax, sales tax & customs duties. However, in the above case we donât need to open LC for imports of Goods because we are required to make an advance TT.
I shall be thankful for an early response.
Zia ur Rahman
Islamabad.
Dear,
There is no compulsion to open an L/C. If you want to deal this transaction through your bank against document acceptance (DA basis), you can make advance payment upto maximum 50 % of total value as allowed by SBP. More than 50 % payment in advance is not allowed. In this case, the supplier while sending you the equipment will make Bill of Lading (B/L) in the name of your bank and documents will also be received through your bank. Bill of exchange will also be issued by you. On receipt of documents you will get the equipment from the port by paying custom duties and taxes. You will have to make balance payment from that bank as well on documents acceptance.
As a second option, if you have to make 100% payment in advance, you can send the supplier TT through money dealers. It is also very very common. There will be no record with any of your bankers as u will purchase foreign currency from market. In this case, it is must that the supplier makes bill of lading in the name of your company directly instead of nay bank. Supplier will send you documents directly. You will take your B/L copy with you and get your equipment from port after making payment of duties and taxes.
You need not to deduct income tax because when the manifest will be recieved, the customs authorties will apply income tax to your imports and will take payment from you for various duties and taxes.
Some of these taxes (like income tax and sales tax) are refundable and do not make part of cost of the equipment. Other duties will be added to the advance payment made for equipment, in your accounting record, to make part of the total value of the asset to be capitalized.
Best regards,
Kamran.
AoA
Thank you very much Mr. Kamran. However, i shall ask one more question about the above topic tomorrow inshallah.
With Best Regards
Zia ur Rahman
Dear Kamran kindly elaborate this with example to the poster please.
"Some of these taxes (like income tax and sales tax) are refundable and do not make part of cost of the equipment.""
The word refundable requires explanation.
Adustable, I guess, will make your query clear
Dear XBRL,
I take an example of sales tax paid on imports by an exporter. The export sales have been zero rated under Sales Tax Act 1990 and exporters, upon exporting their final products, take refund of sales tax paid/deposited in respect of all imports and local purchases. Therefore, sales tax paid at the stage of local purchase or import is refundable for exporters and they account for such payment as sales tax receivable (unless the input tax adjustment or refund is prohibited by law. For such items you have to see Sales TAx Act). Therefore, such refundable sales tax do not make part of cost of imported items.
As far as income tax paid at import stage is concerned, it is to be accounted for as ADVANCE INCOME TAX. Such income tax along with other payments of advance tax or withholding tax or tax deducted at source has to be adjusted against the final income tax liability for any given accounting/tax year. Accordingly, this stands as Refundable or adjustable. It is not to be included in the cost of an imported item.
Hope you wud be benefited by this reply.
Regards,
Kamran.
As per my knowlege, u/s 148 of ITO, for a commercial importer, this tax is a full and final discharge however for a manufacturer cum supplier this is an advance tax paid u/s 148. Under accounting standards, as per IAS 16, any refundable tax can not be made part of asset. For a commercial importer its not an fixed asset but a stock sold. For a manufacturer cum supplier, it will be further fabricated/remanufactured thus still not made part of cost so income tax can not be made part of any STOCK. For an operating fixed asset it can be.
As per Sales Tax, no sales tax at input stage is charged to procure (locally or import)for capital plant, machinery and equipment and raw material used to make them (but not a consumable durable or office equipment)
Kindly correct me if i am wrong or add to it.
rgrds