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Sales tax levy: Revenue Board issues fresh clarification

ISLAMABAD (May 17 2003) : Taking into account the viewpoint of the Ministry of Law and Justice, the Central Board of Revenue (CBR) has announced that sales tax will be leviable on 'value of supply' including all federal, (withholding tax etc), provincial and other taxes at import or any subsequent stage of transaction of imported goods.

The CBR here on Friday issued ruling 11/2003 to all collectors of sales tax to withdraw an earlier CBR clarification of 2001 replacing the above-mentioned decision.

According to details, the Central Board of Revenue had in consultation with Justice Division issued a letter No 3(19)STP/2000 of February 27, 2001, that withholding tax on the charges of gas, being adjustable, was not liable to sales tax as per provisions of section 2(46) of the Sales Tax Act, 1990.

Later on, with reference to clarification sought by certain associations of importers, the Board through a letter also applied this ruling in case of importers who pay withholding tax as full and final liability of income tax at the time of import.

However, a number of registered persons invited the attention of CBR to the definition of value of supply mentioned in clause (a) of section 2(46) of the Sales Tax Act, 1990, vide which the value of supply means the consideration in money including all Federal and Provincial duties and taxes.

They contended that the clarification issued by the Board was not legally tenable as the withholding tax paid by the importers at the import stage was full and final liability of income tax and was to be included in the value of supply as per above referred provisions of the Sales Tax Act, 1990.

Accordingly, a reference was sent to the Justice Division which after a proper examination has ruled that sales tax in terms of section 2(46) of the Sales Tax Act, 1990, is leviable on the value of supply inclusive of non-adjustable withholding tax paid as full and final liability, under the Income Tax Ordinance, on goods at import stage.

In view of this contention of the Justice Division, the CBR has withdraw its letter No 3(19)STP/2000 of 2001 and rules that sales tax is leviable on value of supply which includes all federal, (withholding tax etc), provincial and other taxes at import or any subsequent stage of transaction of imported goods.

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