The Federal Board of Revenue (FBR) is all set to give an undue exemption of Rs 15 billion to oil expellers, according to sources.
While the rest of the business community is required to pay sales tax at the rate of 17 percent, some favoured sectors manage to get away with much lower rates through exemptions and special procedures. One of these favoured groups is the oil expellers, who get reduced tax rates and facilities by using political connections and ‘other means’.
In 2015, some powerful political figures of Pakistan Muslim League – Nawaz (PML-N) managed to get SRO 188(I)/2015 dated 5th March, 2018 issued. This notification exempted the already low rate of sales tax on cotton seed oil and oil cake (2% and 5% respectively), and instead charged sales tax at the rate of Rs 6 per 40 kilograms on supplies of cotton seed by ginners. The value of cotton seed fluctuates, but taken as Rs1,400 per 40 kg, the rate of sales tax becomes 0.4%. In other words, the oil expellers not only managed to get a sales tax rate which was a fraction of the earlier reduced rates, they also managed to shift the liability to pay the tax on to the ginners. As a topping on the cake, the SRO was made retrospective, from 1st July, 2014.
Every year, an average of 10 million bales of cotton is produced in Pakistan. Based on this figure, the sales tax on cotton seed oil and oil cake prior to SRO 188(I)/2015 was about Rs 3.5 billion per year. After SRO 188(I)/2015, the sales tax payable was reduced to 1/10th, or just Rs 350 million per year. In the past four years (July 2014 to June 2018), the loss to the revenue would have been Rs 12.6 billion – had the ginners paid tax under the SRO.
But they did not. Previously, ginners were enjoying exemption on their products (lint cotton and cotton seed) in the Sixth Schedule of the Sales Tax Act, 1990. But strangely, now they were being asked to pay sales tax on cotton seed through a notification. Not unexpectedly, they approached the courts against the SRO, and were granted stay orders against recovery. Ultimately, SRO was held as illegal ab initio by the High Court as well as the Supreme Court, earlier this year.
The department moved to recover the sales tax from the oil expellers at the rates existing prior to SRO 188(I)/2015, i.e. 2% on cotton seed oil and 5% on oil cake. But despite the fact that the earlier SRO had been declared illegal by the Supreme Court on the petitions of the ginners, the oil expellers have again approached the FBR for getting it re-issued.
Reliable sources claim that the Member IR Policy Dr Muhammad Iqbal has already convinced the Chairman to move a summary to the cabinet for re-introducing the same failed scheme.
This means that the sector is being given extra relief when the FBR is facing a huge revenue shortfall. The notification caused a loss of nearly Rs 13 billion to the national exchequer and has already been declared illegal by two High Courts and the Supreme Court.
Published in Daily Times, November 27th 2018.
