Exemption to construction sector may go under VAT

ISLAMABAD: Higher taxation is expected on the steel and construction sector after the implementation of Value Added Tax as all exemptions would be withdrawn under the new regime.
A study paper prepared by the Federal Board of Revenue (FBR) over the success of VAT said there is a special regime for steel sector except for PSM, HMC and Peoples Steel.

However, under the proposed VAT regime no special status would be allowed and 15 per cent VAT would be applied to all the sectors enjoying incentives under GST.

At present, different GST rates are applicable for ship-breaking, steel melters and steel re-rollers, while under VAT regime a standard 15 per cent would be imposed on all these sectors.

The study said that currently, the FBR is using different methods for the determination of value of the products for applying 16 per cent sales tax. Under the VAT regime open market price would be the basis for the applicability of 15 per cent VAT on products.

Steel sector, at present, does not have the facility of input tax credit. However, the VAT regime would offer input tax credit facility to the entire sector that would be subjected to 15 per cent VAT.

At present, different invoicing patterns are applied under GST regime, but the VAT regime would introduce standard invoicing mechanism for all the sectors.

The FBR study said that the federal excise duty on construction sector is charged at the rate of Rs100 per sq.yard on land development for housing and commercial purpose, while FED is Rs50 per sq.ft for covered area of these units._

Under the VAT regime standard rate of 15 per cent would be applicable on land development for residential and commercial units.

Currently, there is sales tax exemption on import and supply of bricks and blocks and construction machinery. However, under VAT a uniform rate of 15 per cent would be charged and input tax credit would be available to the construction industry.

However, various chambers of commerce and industry have approached the FBR, saying that VAT would result in drop in sales of steel products as there would a surge in prices.