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Without payment of duty and taxes: EC seeks clearing of aid materials and vehicles
 admin May 3, 2010, 03:26:13 AM 

ISLAMABAD (June 22 2009): The European Community (EC) has asked the government of Pakistan to allow local disposal of all kinds of goods, equipment, including vehicles, imported under grant-in-aid agreements, without payment of duties and taxes in Pakistan. At present, tax policy of Pakistan does not allow 100 percent exemption of duties and taxes on disposal of vehicles, locally.

In this connection, the Federal Board of Revenue (FBR) has informed the Ministry of Finance to allow incorporation of provisions related to new tax and customs duty in the financing agreements inked with the EC. Tax authorities are examining the issue in view of the current financing agreements inked with the EC.

Sources told Business Recorder on Saturday that FBR is allowing exemption of customs duties on grants received from foreign countries under grant-in-aid agreements signed by the Economic Affairs Division (EAD), and accords conditional concurrence to such agreements as follows: Firstly, the exemption shall be restricted to only such operational equipments, machinery, materials, commodities, supplies and other articles, excluding vehicles, as are essentially required by EU for their own use, for operational use in their projects and are in quantities certified by EAD according to the requirement of project; and goods not directly related to the subject project which shall remain liable to payment of customs duties.

Secondly, duty-free imported goods in quantities certified by the EAD as per the project, shall not be disposed of without prior approval and without payment of duty/taxes leviable at the time of import.

Similar concurrence was given by the Board on four Financing Agreements between the European Community and Pakistan. The EC is, however, insisting that the agreement being signed by it with Pakistan is a standardised agreement of EC which has also been signed with other countries and therefore FBR should give concurrence as such to its Article 9 (9.1), (9.2) and (9.3).

Article 9 - Tax and Customs Provisions says:

9.1 "Save where otherwise provided in the Special Conditions, taxes, duties or other charges (including value-added tax - VAT -or equivalent taxes) shall be excluded from Community financing.

9.2 The State of the Beneficiary shall apply to procurement contracts and grants financed by the Community the most favoured tax and customs arrangements applied to States or international development organisations with which it has relations.

9.3 Where the Framework Agreement or exchange of letters applicable includes more detailed provisions on this subject, they shall apply as well.

As per present policy of the FBR, it does not allow blanket exemption of duty and taxes on import of vehicles. However, on recommendations of Economic Affairs Division, vehicles are given special exemption, on case to case basis. The EC is demanding exemption on all procurement contracts and grants financed by the Community. Moreover, as per Board\'s policy under SRO 576(1)/2006 dated June 5, 2006, after completion of the project, the vehicles can be disposed of locally on payment of duty and taxes under the said SRO, whereas the EC wants disposal of all goods, including vehicles, free of duty and taxes.

The FBR said that the issue was also discussed with the representatives of EC who stated that their agreement is standardised and any change therein would be difficult, which would ultimately result in cancellation of the whole agreement. It is worth mentioning that the present policy of the Board has been in place for about three years and, prior to that, exemption on vehicles was also admissible under such agreements. In view of the foregoing, it is proposed that, if approved, the Board may accord concurrence to customs-related articles 9 (9.1) (9.2) and (9.3), the FBR added.
 

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