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Income
Tax for Exporters |
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Tax on Export Income
The Finance Act 1992 introduced a presumptive Income Tax regime for exporter
through the new section 80-CC in the Income Tax Ordinance 1979. The salient
features of this regime, as updated to the Finance Ordinance 2000, are:-
- Authorized dealers in foreign exchange are required to deduct income
tax at source from all foreign exchange proceeds of exports realised
on or after 1st July 1992.
- Tax is deducted, under section 50(5A) of the I.T. Ordinance, from
all proceeds realised without any monetary threshold.
- Foreign exchange proceeds comprise invoice value of exports, Customs
Duty (if any), freight, insurance and other charges received from the
foreign buyer and credited to the exporter’s bank account. The whole
of such amount received by the exporter is deemed to be his income chargeable
to presumptive tax with effect from assessment year 1993-1994.
- The presumptive tax deducted at source is the full and final discharge
of tax liability in respect of all exporters, including companies and
registered firms, who have no other receipts and source of income. Such
persons are not required to file the prescribed return of Income Tax
and to furnish only simplified statement of their income and presumptive
tax, nor any formal assessment is made.
- The provisions of withholding tax as well as presumptive tax do not
apply in respect of exports by those manufacturers whose total income
is exempt from tax as per specific notifications.
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Rates of Presumptive Income Tax
According to section 80-CC, read with section 50(5A) and clause CCC in the
First Schedule (Part I) of the Income Tax Ordinance 1979, incomes from export
exclusively are subject to Income Tax at 0.75%, 1.0% or 1.25% of the value
of exports actually realised, according as these are categorized in Part
I, Part II and Part III respectively. Details of this categorization of
export products for the three rates of Income Tax are given in The Eighth
Schedule to the Income Tax Ordinance 1979 (App:13.1). Broadly, the lowest
rate (0.75%) applies to fully manufactured goods; the next higher rate (1.0%)
applies to specified mining products and the highest rate of 1.25% to all
other export products. Under section 80-CD, the same income tax rates apply
to exports from the Export Processing Zones.
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Local Sales by Exporters
According to Income Tax Circular No. 20 of 1992 dt 1st July 1992, clarified
in I. T. Circular No 05 of 2000 dt 6th March 2000, local sales of goods
(manufactured for export), as well as waste material, not constituting more
than 20% of such production, is also treated as export sales if the assessee
opts to pay Income Tax on such sales at the rate (s) applicable to export
sales under section 80-CC, provided the exporter maintains books of accounts.
Where income from exports is inseparable form commission, brokerage and
other receipts and the assessee cannot prove the extent of overhead expenses
relating to non-export receipts, allocation of expenses is made on a pro-rata
basis in the same ratio as the receipts not covered by section 80-CC bear
to the gross profit on the export sales.
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Deduction of Advance Income Tax
Section 50(4) of the I.T. Ordinance provides for deduction of advance income
tax at 3.5%for supplies and at 5% for services rendered. According to clause
(37-A) in Part IV of the Second Schedule to the I.T. Ordinance, exporters,
including direct exporters, are exempt from both these deductions.
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Advance Income Tax on Imports
The exporters are also exempt from the payment of 6% advance income tax
on imports (under section 5(5) of the I.T. Ordinance), provided they import
their raw materials and accessories into Customs Manufacturing Bonds or
under any of the Temporary Importation Schemes notified as SRO-1140/97 (App:6.1),
SRO-843/98 (App:8.1), SRO-844/98 (App:7.1), SRO-818/89 (App:9.1), SRO-954/98
(App:9.2) andSRO-592/97(App: 3.5).
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Income Tax for Indirect Exporters
Income Tax is deductible from Indirect Exporters by banks when realising
proceeds of inlandback-to-back letters of credit under which goods have
been supplied to the Direct Exporters. The CBR, in its letter No. F.4 (8)
ITP/99 dt 17.09.99, has allowed the same Income Tax rates to Indirect Exporters
as are applicable to the Direct Exporters of the export products in question.
Clause CCC in the First Schedule has also been amended accordingly. The
condition is that the payments to the indirect exporters are made against
back-to-back inland letter of credit or through crossed cheque against Standard
Purchase Order. The Income Tax so deducted by the banks is full and final
discharge of Income Tax liability of the indirect exporter in respect of
the supplies made.
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Income Tax for Indenting Agents
According to section 50 (5A) of the Income Tax Ordinance 1979, presumptive
Income Tax on commission received in foreign exchange from foreign principals
by indenting agents has been provided at 10% to be withheld by the banks.
This deduction constitutes final discharge of Income Tax liability in respect
of such income from assessment year 2000-2001.
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Reduced Tax on Indenting Commission.
According to clause (2A) in Part II (Reduction in Tax Rates) of the Second
Schedule to I.T. Ordinance, the income tax chargeable in respect of commission
received by an export indenting agent or an export buying house shall be
at the rate equal to the rate of tax applicable to the exporter on the export
of goods to which such commission relates. |
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