Auto parts industry in limbo due to levy of 2% extra tax

LAHORE: The Chairman PAAPAM (Pakistan Association of Auto Parts & Accessories Manufacturers), Usman Malik, has appealed to the Finance Minister, Muhammad Ishaq Dar and Chairman FBR, Tariq Bajwa, to resolve the issue of “2% extra Sales tax”, which has been under discussion with the government for the past 4 months. He stated that, in spite of agreement in principle with FBR and Finance Ministry, the long delay in reversal of “2% extra Sales tax” on non-retail sales of auto parts has created uncertainty, panic and loss of sales in the auto parts industry, as PAAPAM members continue to receive notices and threats from the Tax Collectors for immediate payment of this tax.

The Chairman elaborated that, 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 @ 2% was levied on these items through SRO No.896 dated 4-10-2013.

However, PAAPAM had written to FBR that extra tax @ 2% is not adjustable as input tax and this would add to the production cost of the industry. He 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, Mr. Usman Malik 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 Automobile Manufacturers. This contention was accepted by both FBR and Finance Ministry.

In the light of the above agreement, Chairman PAAPAM has 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.

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