SRO 706 (I)/2010 tractor tax refund: FBR to seek Law Division's opinion
Federal Board of Revenue (FBR) Member Inland Revenue (Operations) Dr Hamid Ateeq Sarwar, Friday, informed the Public Accounts Committee that the FBR has accurately issued SRO706 (I)/2010 to ensure that the prices of tractors should not increase at that time.
To clear ambiguity, the Auditor General of Pakistan (AGP) and the FBR can seek clarification from Law and Justice Division about the legality of this SRO.
Tractor-manufacturing company: FBR raises Rs18bn sales tax demand
During the PAC meeting, officials of the AGP directed the FBR to submit the update on the demand of Rs18 billion raised against a tractor company during an internal audit conducted on the directions of the Federal Tax Ombudsman (FTO).
The officials of the AGP further pointed out whether the farmers were able to get the benefit of SRO706 (I)/2010.
As the matter involves interpretation of law, the same should be referred to the Law and Justice Division, FBR Member Inland Revenue operations added.
According to the audit brief submitted by the AGP before the PAC on Friday, as provided in Section 13(1) read with Sixth Schedule of the Sales Tax Act, 1990, the supply of tractors has been exempted from the chargeability of sales tax. Conflicting with the above provision of the law, FBR issued SRO706 (I)/2010 dated 2nd August 2010 by exercising its powers under Section 13(2) of the law, wherein, the input tax on agricultural tractors was exempted to the tractor manufacturers by way of refund subject to the condition that 'manufacturer shall sell exempt agricultural tractors against proper tax invoice with zero sales tax at the price agreed with federal government'.
The condition 'at the price agreed with the Federal Government' was also deleted on 28.04.2007. Audit is of the view that through said SRO, supply of tractors has been turned zero rated whereas it was an exempt commodity as contained in the 6th Schedule to the Act. The refund of input tax against supply of tractors by treating them as zero rated through an SRO was in conflict with the basic provisions of the Act.
Hence, refund sanctioned in this way was unlawful causing a loss of government revenue to the tune of Rs7,069.311 million during tax periods in case of one manufacturer only, as per information available to Audit.
The LTU, Lahore informed that refund of sales tax was allowed as per existing law/rules/instructions of FBR.
As per Sections 72 and 42 of the Sales Tax Act, 1990 and Federal Excise Act, 2005, the field officers were bound by such law/rules/instructions of FBR.
As such no loss occurred on the part of officers of LTU. Audit is of the view that administrative officers were bound to comply with the provisions of the Act of the parliament in public interest rather than to blindly follow the instructions of FBR while sanctioning such refunds. Hence, the reply given by the department is irrelevant and not tenable.
The AGP objected that special excise duty was levied under Section 3A of the Federal Excise Act, 2005 on goods specified in SRO 655(1)/2007 dated 29-06-2007.
Later on, special excise duty was exempted vide SRO 675 (1)/2011 dated 01.07.2011 issued under Section 16(2) of the Act, effective from 01.07.2007 by way of refund to the purchaser i.e. manufacturer of tractors. After issuance of SRO of 2007, vendors of agricultural tractors kept on charging this duty and the same was also being paid by the tractor manufacturers while making taxable supplies.
Tax authorities of FBR allowed a refund of special excise duty (SED) to M/s Millat Tractors (Pvt) Ltd by giving the benefit of SRO dated 01.07.2011 from back date i.e. July 1, 2011 to the taxpayer.
Audit is of the view that Section 16(2) of the Federal Excise Act, 2005 does not empower the federal government to exempt duty from retrospective effect as specifically allowed in case of sales tax under Section 13(4) of the Sales Tax Act, 1990. Hence, refund of SED of Rs242.826 million to Millat Tractors (Pvt) Ltd, allowed during July 2007 to May 2011, was unlawful. Moreover, the amount of special excise duty became part of the price of tractor and was passed on to consumers/farmers. In this way, tractor manufacturers enjoyed double benefit i.e. higher prices of product and refund.
The officers of LTU allowed refund of special excise duty as per Sections 72 and 42 of Sales Tax Act, 1990 and Federal Excise Act. The reply was irrelevant and did not address the issue. The lapse was pointed out to the department during June to October 2013.
In this regard, it is stated that recovery notice dated 03.07.2025 has been issued to M/s Millat Tractors Limited for payment of sales tax amounting to Rs1,847,840 by 15.07.2025.
Further, DGAIR (North)'s letter dated 03.01.2017 has been forwarded to the board for necessary guidance and its reply is awaited.
The DAC directed the LTO, Lahore to get its stance verified from audit in the light of board's clarification issued on 07.04.2017 and submit progress to audit and FBR by 30.07.2025.
The PAC may like to direct the department to: i)expedite recovery of government dues; ii) justify issuance of SROs conflicting with Acts of the Parliament and fix responsibility on person(s) at fault; iii) submit SROs pertaining to exemptions, concessions and zero rating of supplies, issued during a financial year, for Parliamentary approval; and iv) conduct a fact finding enquiry on the issue as FBR has already conducted internal audit of a tractor company for the subsequent period(s) on the directions of honourable FTO and raised demand of Rs.18.7 billion on the same issue, the AGP report added.
Copyright Business Recorder, 2025
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Express Tribune
5 hours ago
- Express Tribune
Pakistan removes hurdle in trade deal with US
Finance Minister Muhammad Aurangzeb shakes hands with US Secretary of Commerce Howard Lutnick during a meeting in Washington on Friday, July 18, 2025. Photo: Ministry of Finance Listen to article In a major concession to the United States for striking a trade deal, Pakistan on Wednesday exempted 5% tax, which it had imposed a month ago on foreign tech firms and online platforms on supply of digitally ordered goods and services. However, the tax exemption is not specific to only the US tech companies. All the foreign firms will benefit from the decision, which has been taken on the demand of the US administration, a senior official of the Federal Board of Revenue told The Express Tribune. The FBR, the nation's tax collecting authority, notified the waiver on Wednesday, the day Finance Minister Muhammad Aurangzeb was in Washington to further bilateral trade talks. Also Read: SBP keeps interest rate at 11% 'In exercise of the powers conferred by section 15 of the Digital Presence Proceeds Tax Act, 2025, the federal government is pleased to direct that the Digital Presence Proceeds Tax shall not apply to digitally ordered goods and services supplied from outside Pakistan, by any person, which are chargeable to tax under the said Act,' according to the FBR notification. It further added that the tax will be waived off with effect from the first day of July 1, 2025 — the day the new law and fiscal year 2025–26 budget became effective. A Pakistani delegation is currently in the US to settle the outstanding issues that are hampering the bilateral trade deal. It is the second visit by the Pakistani team in less than two weeks, aimed at securing the trade deal that can address the US concerns and to a greater degree protect Pakistan's commercial interests. The sources said that during the last round of trade talks held between Pakistan's Finance Minister and the US Secretary of Commerce, Howard Lutnick, the US had raised the issue of the 5% tax imposed in the budget, which was hurting the US tech giants. Read: IMF puts growth below govt target The waiver will cause billions of rupees in tax losses to Pakistan. The Finance Ministry sources said that to address any concern by the International Monetary Fund, the US authorities may directly speak to the Fund. The US is the single largest shareholder of the IMF, having little over 16% stakes. The government had imposed the 5% digital proceeds tax on the grounds that the cross-border e-commerce by foreign vendors remained largely untaxed in Pakistan due to tax treaty limitations requiring a permanent establishment for income taxation. The FBR had apprised the National Assembly Standing Committee on Finance that the tax base of market jurisdictions' erosion was occurring as foreign businesses used digital platforms to sell goods and services without physical presence. Many countries have introduced Digital Services Taxes (DST) to reclaim taxing rights based on significant digital presence, especially for services, and accordingly Pakistan proposed to tax both digitally supplied goods and services. Also Read: Cabinet approves national AI policy, targets 1m professionals by 2030 The standing committee had also been briefed that the digital advertisement of foreign vendors i.e., Temu in the Pakistani market by platforms such as Google would be taxed in consistency with Pakistani taxing rights. Under the new law, payment intermediaries — including banks and financial institutions — were required to collect tax on digital payments made to foreign vendors supplying goods or services into Pakistan. They are also required to quarterly report the revenue collected from international e-commerce providers. The Express Tribune reported on July 19th that Pakistan had assured the United States-based Google that it will be exempted from a 5% new digital tax and parts of the company's income will be taxed even at two-thirds reduced rates. The government had enacted the Digital Presence Proceeds Act in June to enhance tax collection from the offshore companies that had significant digital presence but were not paying taxes on their earnings. This month, the tax authorities assured the company that 'Google is not the target of the Digital Presence Proceeds Tax Act' and the legislation has been designed to cover specific cases of significant digital presence where no physical or registered business presence exists in Pakistan. Read More: PSX closes up as State Bank leaves rate unchanged Google has significant business presence in Pakistan and provides services for online advertising, search engine, cloud computing, communication, and entertainment. It is also the single largest contributor of digital service tax payments. Companies like Meta, Amazon, Microsoft, and Netflix will also be the beneficiaries of the tax exemption. The enactment of the Digital Presence Proceeds Act had created ripples in Pakistan, particularly among the YouTube users. The government had introduced the digital presence proceeds law to tax digitally delivered services provided over the internet or electronic networks, where the delivery is automated and required minimal or no human intervention, including music, audio and video streaming services, cloud services, online software application services, services delivered through online interpersonal interaction i.e., tele-medicine, e-learning etc, online banking services, architectural design services, research and consultancy reports, accounting services in the form of digital files, or any other online facility.
Business Recorder
a day ago
- Business Recorder
Digitisation: tread the path carefully
EDITORIAL: The incumbent government is focused on digitisation in areas of engagement with the general public — which began with the use of ATM cards by the beneficiaries of the Benazir Income Support Programme (BISP), and more recently by a proactive drive towards digitisation by the Federal Board of Revenue (FBR), and yet to be implemented recent decision by the cabinet to print QR codes on all utility bills (electricity, gas, and telephone). The objective of such an exercise is salutary: to ensure all payments to BISP beneficiaries are effectively disbursed and all dues to the government are effectively collected. Reports suggest that many BISP beneficiaries, who are not literate and unable to withdraw the cash themselves, are forced to rely on others to withdraw their quarterly payments. Many who assist beneficiaries charge a flat fee for the withdrawal, while there are some who are unscrupulous and defraud a beneficiary of a sizeable portion of the money. And while some do register a complaint in the FIA yet the amount involved is so small from the FIA's perspective that investigation, if any, is perfunctory. State Bank and FBR have jointly introduced online collection of taxes and duties which, as per the Bank's website, is 'aimed at improving payments system especially in the context of revenue collection besides facilitating taxpayers and minimising incidence of leakages' as 'empirical studies show a strong correlation between electronic tax collection and revenue growth.' This again presupposes that a small or even a medium-sized business would have the necessary manpower — 'computer literacy' — to pay online without incurring any extra cost — a supposition that may not be accurate and may actually push many a prospective taxpayer to opt to operate purely on cash — a trend that is fairly widespread in this country. However, the SBP does note that 'digital risks emanating from the system need to be addressed carefully. Cybersecurity and privacy issues should be prudently tackled for developing taxpayers' trust and making digitisation more progressive.' With respect to QR codes, there is a legitimate concern that QR codes may actually allow the fraudsters to pay off part or whole of someone else's utility bill. In the UK, QR codes are increasingly found in electricity bills that provide tariff details, consumption and other relevant information that may potentially facilitate payment. However, what is relevant to note is that QR codes in use in the UK have features like advanced encryption and string customer authentication that assists in protecting financial information. While the recent thrust by the government towards a cashless economy is supported as its objective is to streamline payment/dues and to ensure fewer delinquents, yet Pakistan has not achieved any degree of cyber security that is critical before this objective can be met. One would hope that the government focuses attention on education; so far the provincial outlays on education have been small and more than offset by budgeting large amounts on physical infrastructure that, disturbingly, is increasingly requiring massive annual maintenance due to the floods as Pakistan remains one of the most climate-stressed countries in the world. To conclude, a holistic approach would entail starting with higher education outlays, at least 6 percent of total expenditure, which would provide the public with the know-how to use the digital platforms effectively and guard themselves against the ever-present likelihood of fraud in this country. Copyright Business Recorder, 2025
Business Recorder
a day ago
- Business Recorder
‘Disputed scrap' FBR directs Customs to enforce new law
ISLAMABAD: The Federal Board of Revenue (FBR) has directed Collector of Customs to strictly implement the new law that scrapping and mutilation shall not be allowed for quantity exceeding 10 percent of the imported goods. In this regard, the FBR has issued instructions to the field formations for strict compliance at airports and ports. To limit the facility of allowing mutilation/scrapping of disputed scrap only to bona fide disputed goods, a provision has been added to Section 27A of the Customs Act that scrapping and mutilation shall not be allowed for quantity exceeding ten percent of the imported goods. The chief collector of customs, Airports, Islamabad and all collectors of Customs Airports are directed to ensure strict implementation, the FBR added. According to the Finance Act 2025, 'Provided further that scrapping and mutilation shall not be allowed for quantity exceeding ten percent of the imported goods', it added. Official sources told Business Recorder that the law has been introduced to check massive misuse of the facility in the past by the importers. Copyright Business Recorder, 2025
