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Next budget to check withholding tax evasion

The government has decided to take preventive measures in budget 2003-04 to check the illegal withholding tax exemption claims on import of computer parts, sources told Business Recorder here on Monday.

Some assemblers-cum-suppliers of computer parts were taking undue benefit of SRO 593(I)/91 of June 30, 1991 by claiming wrong withholding tax exemption at the import stage, thus causing huge losses to the national kitty.

The income tax department was mum on the issue till the custom authorities unearthed this scam which, according to authorities, is causing annual loss of millions of rupees.

The issuance of false certificates by the Commissioners of Income Tax (CITs) to the importers of computer parts would be effectively checked through amendment in the relevant SRO in the next budget.

According to reports, customs authorities detected a computer company in Lahore, which wrongly claimed exemption of withholding tax on computer parts at the import stage under SRO. 593(I)/91.

The unit managed to get an exemption certificate from the concerned CIT.

The department apprehended that a number of other companies might have evaded the authorities by applying the same modus operandi.

The above-mentioned company imported computer parts for assembly of computers and subsequent sale.

The company mentioned these items in the category No (iv) of SRO 593(I)/91 of June 30, 1991 as per exemption certificate issued by the concerned CIT.

This is how the computer parts were excluded from the classification of persons liable to pay withholding tax at the import stage.

Sources said that as per relevant SRO, category No (iv) covers “persons who import plant, machinery, fixtures, fitting or any other equipment for the purpose of setting up an industrial undertaking (including hotels) approved by the Federal Government in respect of such plant, machinery, fixtures, fitting or any other equipment”.

On the other hand, the importers of computer parts cannot be clubbed with persons of category (iv) of SRO 593(I)/91; hence are liable to pay withholding tax at the import stage.

The tax authorities would amend the relevant notification to control the ongoing misinterpretation to avoid payment of withholding tax.

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