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CBR clarifies withholding tax on ship-breaking

ISLAMABAD (July 28 2005): To facilitate the ship-breaking industry, the Central Board of Revenue (CBR) has announced that one percent reduced rate of withholding tax on import of ships for dismantling would be applicable on the 'Bills of Entry' presented on or after July 1, 2005.

The CBR on Wednesday issued Income Tax Circular 5 of 2005 to clarify the levy of withholding tax on ships imported for dismantling.

The import of condemned ships for breaking was subject to withholding tax under section 148 of Income Tax Ordinance 2001 at the rate of 3 percent of import value as increased by customs duty and sales tax. This rate has been reduced to 1 percent through Finance Act, 2005, [clause (13), of Part II of the Second Schedule].

After budget 2005-06, the CBR issued Circular No 1 of 2005 (Income Tax) of July 5, 2005 where paragraph 40 of the circular said that the reduced rate would be applicable to those imports of condemned ships where LCs had been opened on or after July 1, 2005.

Representations were made to CBR that in some cases LCs were opened immediately after the presentation of Finance Bill under the impression that this facility had become available. In order to avoid any hardship because of this misunderstanding, it has been decided that concession of reduced rate of 1 percent as per clause (13) of Part II of the Second Schedule will be available in respect of Bills of Entry presented on July 1, 2005 and/or thereafter.

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