LAHORE -  In spite of agreement, the Federal Board of Revenue as well as the Finance Ministry are using delaying tactics to reverse “2% extra sales tax” on non-retail sales of auto parts, creating uncertainty, panic and loss of sales, as the industry continues to receive notices and threats from the tax collectors for immediate payment of this tax.

“Vide Finance Act, 2013, 15 new items were added in 3rd Schedule of Sales Tax Act, to levy sales tax on retail prices of these items. However, in view of hardships faced by registered persons, FBR excluded 11 items from 3rd Schedule; and, in lieu of charging sales tax on retail prices, extra sales tax at 2% was levied on these items through SRO No.896 dated 4-10-2013.” However, PAAPAM had written to FBR that extra tax at 2% is not adjustable as input tax and this would add to the production cost of the industry.

Pakistan Association of Auto Parts & Accessories Manufacturers chairman, Usman Malik explained that the rationale behind imposition of 2% extra tax was that majority of wholesalers, distributors, dealers and retailers in the downstream supply chain were not paying any sales tax in respect of their value addition; but in the case of auto parts & automobile manufacturers, the supply chain is fully documented and supplies made to automobile manufacturers cannot be termed as “retail sales”. Therefore, he concluded that, while PAAPAM was paying 2% extra sales tax on auto parts supplied directly to the market, this tax should not apply on auto parts supplied to auto manufacturers. This contention was accepted by both FBR and Finance Ministry. In the light of the above agreement, he again asked chairman FBR and the finance minister to immediately issue SRO to the effect that non-retail sales of auto parts should be exempted from 2% extra sales tax.