ISLAMABAD: An anomaly in the sales tax law has resulted in serious implications on the domestic industry and manufacturer of PS plate where 15 percent sales tax on its local supply has encouraged purchase of highly under-invoiced products by the unregistered consumers.

Sources told Tax Review on Thursday that 15 percent sales tax is applicable on domestic supply of PS plates. As sales tax is not zero-rated on domestic supply, it resulted in distortion in the entire chain of supply, encouraging business of smuggled products. The supplier is registered, but the actual consumer of item is unregistered, creating legal problems in the local supply stage.

The revenue implications due to sales tax on PS plate is very excruciating for local manufacturers, as the item is widely consumed by the printing industry of Pakistan. There being no sales tax on the printing newspaper, books, journals etc, the end users do not require input tax on the purchases of PS plates.

Therefore, the incidence of which has to be solely borne by local manufacturers. The major portion of end users of PS plates is unorganised sector, who prefer to purchase this item without payment of sales tax. This resulted in increased manufacturing cost making local industry uncompetitive due to availability of smuggled and undervalued imported PS plates.

Sources said that the anomaly could be resolved by zero-rating sales tax on domestic supply of PS plates to discourage underinvoicing and misdeclaration at the import stage. The distortion in the supply chain could be removed through zero-rating regime, already applicable on a large number of items.

Local manufacturers of PS plates have already requested the FBR to increase the rate of customs duty from 15 percent to 25 percent on import of the same but, the new Pakistan Customs Tariff (2008-2009) has not incorporated the amendment. The unscrupulous importers have been involved in illicit trade of underinvoicing on the import of PS plates and printing Ink.