FBR initiates tax evasion enquiry against stationery businesses

KARACHI: The Federal Board of Revenue (FBR) has started a tax evasion enquiry against stationery businesses manufacturing pencils and books by probing their returns.

This comes amidst the government reinstating zero-rating facility for the multi-billion rupees industry starting July 1^st, reported The News.

According to officials, a dominant group having interest in the stationery industry persuaded the government to withdraw the exemption regime and reinstate zero-rate sales tax facility starting July 1^st.

However, officials at the Regional Tax Office (RTO), Karachi stated the zero-rate sales tax facility was retired via Finance Act 2016 due to a major misuse of the facility.

The previous government had withdrawn the zero-rating of stationery items and said the scheme was being abused.

Hence the zero-rating scheme was changed to an exemption in the budget for FY17 and tax exemption for stationery items became applicable from July 1^st, 2016.

An RTO official said the stationery manufacturers need to provide a report of stock-taking for the period ended June 30^th, 2016.

The official added registered taxpayers were taking advantage of zero-rating sales tax on their inputs on procurements made on June 30^th.

As per the tax official, no record of closing balance and subsequent supplies was available due to exemption regime and the reason of investigating income tax returns for the tax year 2017 was to scrutinize the income declared by registered individuals on basis of their sales.

The stationery industry availed zero-rate sales as input on ending stocks by June 30^th, which was subject to zero-rate sales tax on output for later supplies, said the official.

The official stated, “Since output was exempted from July 1, 2016, the zero-rate input became payable.”

And the official pinpointed the stationery industry and businesses selling raw materials for the manufacturing of exercise note books and books largely went unrecorded.

The official added this culminated in flying invoices and issuance of illegal adjustments.

Moreover, the tax official emphasized the exemption regime was launched to give sustenance to the public since there were tax-free purchases and supplies of goods at the manufacturing stage.