The government has decided to impose lower rate of 2 percent sales tax on the local supply of cotton seed oil by the solvent extraction plants to the manufactures of vegetable ghee and cooking oil. Sources told Business Recorder here on Friday that Ministry of Finance has received a proposal of the Federal Board of Revenue (FBR) to impose 2 percent sales tax on the supply of cotton seed oil for generating additional revenue.
Following approval of the Ministry of Finance, the FBR will abolish sales tax zero-rating on the cotton seed oil and brought the same in the formal sales tax regime. At present, the solvent extractors have been engaged in supply of cotton seed oil to the manufacturers of ghee/cooking oil. After imposition of sales tax on supply of this item, suppliers of cotton seed oil will add sales tax at the rate of 2 percent in their invoices which would be supplied to manufacturers of vegetable ghee and cooking oil. Whether cotton seed oil has been supplied to unregistered or registered persons, the same rate of 2 percent would be applicable in both the cases.
In FY13 budget, the FBR had shifted cotton seed oil from exemption to zero-rating regime enforced through amendment in relevant Schedule of the Sales Tax Act, 1990. Prior to announcement of budget (2012-13), cotton seed was zero-rated while cotton seed oil was exempt from sales tax. The FBR presented an argument that due to this exemption, the solvent extractors do not issue any invoice to the oil/ghee mills, leading to non-reporting of actual production of oil and ghee mills.
This also lead to misuse of imported oil, which was sold in the open market, substituted by the production of oil/ghee from locally produced oil. Thus to overcome the evasion in oil/ghee sector, cotton seed oil was zero-rated in last budget through amendment in the sales tax law. Now, zero-rated cotton seed oil would be subjected to a lower rate of 2 percent sales tax at the stage of domestic supplies, sources added.