Ship breakers: ST deferred payments facility to go

The Federal Board of Revenue (FBR) will withdraw sales tax deferred payments facility to the ship breakers. Sources told Business Recorder here on Tuesday that the FBR has decided to issue a Statutory Regulatory Order (SRO) to take away the deferred payment facility from the ship breaking industry.
On the other hand, Pakistan Ship Breakers Association observed that despite payment of Rs 14 billion as sales tax during July 2008 to June 2012, ship-breakers are paying sales tax @ Rs 5,862 per metric ton (PMT) which was enhanced from Rs 4,840/- in the Budget of 2012. On average, this increase in sales tax works out to be nearly 23 percent.
The melters were paying sales tax @ Rs 5,600 PMT which has been reduced to Rs 3,200/- PMT in the Budget of 2012, which is a huge incentive of 43 percent. This has caused the national exchequer a loss of nearly Rs 9.6 billion per annum. (Rs 2,400 PMT x 4.00 Million tons). The FBR should treat ship breaking industry at par with melting industry and sales tax for ship breakers should also be reduced to Rs 3,200 per metric tons (PMT) instead of Rs 5,862/- PMT, it added.
Sources said that through proposed SRO, the Commissioner Inland Revenue shall issue a certificate verifying payment of tax u/s 148 and full payment of all deferred sales tax liability under sub rule (4) of rule (58H) of Sales Tax Special procedure Rules 2007 prior to its substitution. The sub-rule (4) and (5) of Rule-58H of Sales Tax Special Procedure Rule 2007 would be substituted so as to withdraw deferred payment facility for the ship breaking industry.
Under existing rules, the ship breaking industry has been allowed the facility of deferred payment under rule 58H (4) of Sales Tax Special Procedure Rules 2007. Under section 58H (4) of the Sales Tax Special Procedure Rules 2007, ship breakers shall pay sales tax at the rate of five thousand eight hundred and sixty two rupees per metric ton of re-rollable scrap supplied by them.
The quantity of re-rollable scrap shall constitute 70.5 percent of the total LDT of the ship imported for breaking. The ship-breakers will clear their sales tax liabilities in respect of ships weighing up to ten thousand LDT within four months, while in case of ships weighing more than 10,000 LDT, within eight months from the date of filing of Goods Declaration.
The sales tax liability shall be discharged by the ship-breaker either on completion of clearance of goods obtained from breaking of vessel or within the maximum time period allowed as aforesaid, whichever is earlier, Sales Tax Special Procedure Rules added.
Meanwhile, Pakistan Ship Breakers Association has informed the FBR that since 1994 ship-breakers arc paying income tax @ 1 percent at import stage on C&F value of scrap vessels u/s 148 of the income Tax Ordinance which was treated as our full and final liability.
A letter dated June 21, 2012 was addressed to all LTUs/RTOs by the Secretary, (Withholding Tax) with the instructions for deduction of withholding tax by re-rollers on purchases made from ship-breakers u/s 153 of the Income Tax Ordinance 2001.
The association held a meeting with the Senior Member and the Chairman, FBR and tax authorities agreed to the association''s proposal to pay a total tax @ 2.5 percent u/s 148 and 153 as single tax at the import stage. It said that the melting industry at present is liable to pay only 1 percent income tax while ship-breakers are made to pay 5 percent income tax (5 times more in comparison) which is a serious anomaly and not justified at all.
Ship-breaking is the only revenue generating business employing local labour in the least developed Province of Balochistan where the law and order situation does not need any further comment. Ship-breakers have struggled to make this venture viable in the absence of electricity, gas, water, sewage and above all the dilapidated conditions of roads. The association be allowed to pay income tax/withholding tax (merged as single tax) @ 2.50 percent u/s 148 and 153 as our full and final liability, it added.
Source: Business Recorder