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3.5% Withholding Tax on Material Supplies
02-16-2009, 10:46 PM,
3.5% Withholding Tax on Material Supplies


I have a question and would very much appreciate your assistance.

Let's assume Company ABC imports zips, does some work in it and then sells on to local businesses. Most of the customers of Company ABC are supposed to withhold 3.5% from the invoice value. It turns out and that not all customers withhold this 3.5%, maybe because some are not supposed to withhold (AOP) and some have forgotten to withhold. I was reading that the clients/customers who have not withheld money are personally liable for this.

I know that the 3.5% tax withheld on this kind of revenue would be a final tax regime. My question is when Company ABC prepares the Income Tax Return, how would they record those material supply revenues for which no money has been withheld? Do they disregard that income? Would that income fall under Normal Tax Regime? Would it make a difference if the Company ABC's customers "forgot" to withhold or were not "prescribed" to withhold?

Please share your opinions. Thanks,

02-17-2009, 12:59 AM,
I would try to Explain u some Definition.

<b>Commercial Importer-</b> who are they Import Goods & as it is Sales
<b>Local Supplier-</b> They Purchase Goods Locally and Supply as is it.
<b>Manufacturer-</b> They Import & locally Purchase Goods or materials for any process which substantially changes their original condition or Shape.

If Commercial Importer Imports Goods or Material, at the time of Imports he Pay the Advance Tax U/S148 @ of 2%, because that he will discharge from full and final Tax liability, its FTR, he need to collect Tax Exemption certificate U/S159 from Income Tax commissioner. In light of Exemption Certificate no one can Collect or Deduct withholding Tax on Supplies of Imported Goods U/S 153.

If Local Supplier supplies the goods or material as it is to the Purchase, & purchaser at the time of making payment Deduct or collect amount U/S 153 @ of 3.5%, it is FTR,

If Commercial Importer Imports Goods or Material & Local supplier Purchase Goods or Material & change their original Condition or Shape any kind, so they will skip from their Definitions and they will Conceder as Manufacturers.

So I think Now u Should Understand that,,,, The ABC company is Manufacturing Company, because they Imports Zips and some work on it, so Its income is Normal Taxable Income, u Should Calculate Taxable Income Normally, & u can Adjust withholding tax paid on Import & supplies of goods.
02-17-2009, 03:26 AM,


I am confused! Importing zips and then colouring zips and some more minor work before it could be sold on to the local buyers...............would one regard that as manufacturing? Also, let's assume that Company ABC is an AOP, would that change the facts?

You also said that ABC can collect exemption certificate..........I don't think they will qualify for an exemption certificate because paying advance tax @ 2% on imports is seperate to the 3.5% advance tax collected by local purchasers.

I am confused. Please explain how this all works. Facts are

Scenario 1 - ABC is an AOP
Scenario 2 - ABC is a company

Also try and explain what "manufacturing" technically is and what difference will it make if ABC manufacture zips or just buy and sell zips.

Extremely sorry, but I need some clarification.


02-17-2009, 02:57 PM,
Don’t confuse yar,,,
U Think , Imports Income separate from Supplies income, its true , but when ,
U Imports goods & supplies of Imported goods, this income separate from , U purchased locally any supplies of goods,
But when u import a good and sales this imported good, these r not 2 income, its 1 income from Imports.
U asked in quire about Imported Zips, & ABC alters its shape like change the color, that’s way, ABC skip from Commercial importer to Manufacturer, IF ABC don’t Change color & alter the shape, then they will Commercial Importer, & their income comes in FTR. Dose not matter Commercial importer is Individual , AOP, if they are doing business as commercial importers they can get Exemption certificate from Commissioner Income Tax on Supplies of Imported goods only, not for local supplies.
01-18-2010, 08:18 PM,
hmm, I totally confused. But its looking interesting. I want to think on this. Sure I will definitely let you know in short period, because I have good knowledge on this

High quality industrial low bay lighting
02-14-2010, 09:10 PM,
That is not practicle
04-20-2010, 08:50 PM,
Hmm but it may be a practical one...

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