Islamabad, April 11, 2002

CIRCULAR NO. 05 OF 2002

(Income Tax)

Subject:           PROCEDURE REGARDING CLAIMING OF EXEMPTION UNDER SECTION 50(4) ON SUPPLIES WHERE TAX UNDER SECTION 50(5) HAS BEEN PAID

In view of hardship faced by importer-cum-supplier on payment of withholding tax @ 6% of value of goods imported and further withholding tax @ 3.5% out of payment for supplies of imported goods, (5% in the case of Non-NTN holders), the Board issued a notification No. SRO 97(1)/2002 dated 12th February, 2002, providing that the provisions of sub-section (4) of section 50 of the Income Tax Ordinance, 1979, shall not apply in respect of payments received by a resident person for supply of such goods as were imported by the same person and on which tax has been paid under sub-section (5) of section 50 of the said Ordinance.

2.     The Board has received queries regarding procedure to be followed for implementation of the concession allowed under the said notification. It has been enquired as to whether any exemption certificate is required for not deducting the tax on such supplies. Apprehension about misuse of the concession and safeguard for the "payers" have also been expressed by certain quarters.

3.     The matter has been examined in the Board in the light of these queries. After considering the suggestions, and apprehension of the "payers", it is emphasised the the primary responsibility in this regard rests with the withholding Agents ("Payers") who have to ensure that no hardship is caused to the "Suppliers" and also that the facility extended on this account is not misused by unscrupulous suppliers.

4.     Acknowledging the merit of these representations received in the Board seeking advice as to mechanism for implementation thereof, the following board parameter's are enunciated for the guidance of the "Payers" and the "suppliers":-

(i)     Exemption certificate under section 50(4) of the Income Tax Ordinance is not required by the supplier where the supplier has paid tax under section 50(5) of the Income Tax Ordinance, 1979, on the goods supplied, except in cases where the certificate is obtained by the assessees under SRO 593(I)/91 dated 30.06.1991.

(ii)    Tax on supplies will not be deducted by the payers only if goods are imported in the supplier's name and supplied in the same state and no value addition is involved. For this purpose, the supplier may give a written undertaking to the effect that the item mentioned in the invoice has been supplied without any value addition and tax under section 50(5) of the Ordinance has been paid thereon.

(iii)    It is the responsibility of the "payer" to ensure that supplies received by him do not require deduction of tax under section 50(4). For ascertaining the fact that the supplier is himself the importer, goods supplied are the same which were imported and on which tax under section 50(5) of the Income Tax Ordinance, 1979 waspaid as commercial importer, the payer/withholding agent may require furnishing of import document such as original Bill of Entry. He has also to ensure that there is no addition to the value of goods supplied.

5.     The Board takes the opportunity to request the tax payers and the withholding agents to faithfully observe the above instructions so that at the time of audit by the Departmental officers no embarrassment is caused.

(Sardar Aminullah Khan) 

Chief (DTR)            

Tele. 9209046