FBR set to unveil automated system to issue tax exemption certificates

ISLAMABAD: The apex tax authority is all set to launch an automated system to issue exemption certificates to importers of raw materials in a bid to minimise human interaction and speed up the processing time.

The Federal Board of Revenue (FBR) on Wednesday sought proposals from all the stakeholders before launching the new system.

“The board intends to improve the system of issuance of exemption certificates under Section 148 of the Income Tax Ordinance, 2001 especially for import of raw materials and intermediaries used by industries,” the FBR said in a statement.

The proposed system is to be based on an automated risk based mechanism to reduce processing time for issuance of exemption certificates and to avoid unnecessary delays. The automated procedures have been planned for individuals as well as private and public sector companies. Tax exemption is applied in respect of imports of raw materials specified in a sub-section of the section 148. Exemption is applied for six months. Materials can be imported for own use i.e. in-house production of the end product. A raw material can be substituted for another raw material.

An importer has to upload an undertaking into the system along with picture of a manufacturing facility properly geo-tagged. The application for tax exemption has to be filed through the FBR’s online system IRIS. It has to state exact nature of the raw materials.

Exact quantity of raw materials should be specified in units. Tax should be paid during any of the preceding two tax years on the basis of taxable income. Tax liability for the current years on the basis of determined tax liability for any of the two preceding years, whichever is higher, should be cleared.

The quality of raw material does not exceed 125 percent of the quality of raw material imported and consumed during the previous tax year to qualify for tax exemptions.

The FBR said raw materials imported before the application is filed would be excluded from the ambit of exemption certificates. No arrears of income tax, sales tax or federal excise duty would, however, be outstanding. Income tax, sales tax and federal excise returns and withholding statements should be filed to the system.

The commissioner will be responsible to issue exemption certificate in case of public limited company within seven days and within 10 days in case of a private limited company. For individuals, the time is within 15 days after filing of an application through the proposed automated system. But, if the commissioner fails to take action on the application within time limit, the system will automatically issue exemption certificates to the taxpayer. Such exemption certificates issued to anyone, except public limited companies, would be provisional. The system will not issue exemption certificate if an assignment has been issued by the commissioner within seven days of filing of the application.

The exemption certificates automatically issued by the system could be revoked by the commissioner any time if it comes to the knowledge that any of the conditions have not been fulfilled, after giving an opportunity of being heard.

The FBR requested for valuable inputs from all the stakeholders to improve quality of the decision making. The FBR asked the stakeholders to give their feedbacks to Member Inland Revenue Service (Operation) Seema Shakil, Member Inland Revenue (Policy) Hamid Ateeq Sarwar, Special Adviser to Member IR (Operation) Naveed Khalid, Secretary Revenue Budget Sultan Nawaz and Secretary IR (Operation) Tariq Javed.