FBR Asks for Legal Help on Tractor Tax Exemption Issue
The Federal Board of Revenue (FBR) wants to know if an old tax exemption given to tractor manufacturers was legal or not. To get a clear answer, FBR is asking the Law and Justice Division to check and explain.
Background of the Issue:
In 2010, a rule called SRO 706(I)/2010 was made. This rule allowed tractor manufacturers to get refunds on input tax. The goal was to keep tractor prices low for farmers.
But now, there’s confusion. Some people think this rule might not follow the Sales Tax Act, 1990 properly. So FBR and the Auditor General of Pakistan (AGP) are checking if the rule was made legally.
Why is This a Problem Now?
During a meeting with the Public Accounts Committee (PAC), AGP officials said that this rule caused the government to lose billions of rupees in tax money. One tractor company alone got Rs7.07 billion in tax refunds.
Also, the Federal Tax Ombudsman (FTO) did an internal audit and found problems. Because of this, FBR sent a demand notice of Rs18 billion to the tractor company.
Two Main Legal Issues Raised:
- Sales tax exemption vs zero-rating:
- Tractors were already exempt from sales tax.
- But SRO 706 made them zero-rated, which allowed companies to claim refunds.
- This conflicted with the law, according to AGP.
- Excise duty refund:
- One company, Millat Tractors, got back Rs242.8 million in excise duty.
- AGP says this refund was not allowed by law because the rule was used for past years.
- Also, the company might have charged customers for this tax, even though it got a refund. So, it benefited from both sides.
What is Happening Now?
- FBR has sent a recovery notice to Millat Tractors to get Rs1.84 million back.
- PAC wants FBR to:
- Recover the full amount quickly.
- Explain why such a rule was made.
- Send the rule to Parliament for review.
- Start an inquiry to find out what really happened.
In short:
There is a big question on whether a tax rule for tractor companies was legal or not. It may have caused the government to lose billions in tax money. Now, the FBR is taking legal steps to sort out the matter and recover the money.