The government has decided to exempt machinery, equipment and other capital goods worth $50 million from customs duty for new power projects against valid contracts, official sources told fbr times Giving details, sources said that the Finance Bill 2014 has introduced a new Fifth Schedule to the Customs Act, 1969 to replace Customs S.R.O. 575(1)/2006 dated 05-06-2006. This envisages import of plant, machinery and equipment (including energy-related projects) and their local manufacturing status linking with CGO-11/2007, with the objective to encourage the locally manufactured goods and also to save valuable foreign exchange. In the process of transferring the terms and conditions of the SRO 575(1)/2006 to the Fifth Schedule of Customs Act 1969, certain entries (mentioned in SRO 575(1)/2006, against Sr. Nos. 1, 2, 6, 15, 20, 28, 29, 31 and 35A), were not linked with CGO-11/2007 and were now subjected to determination of local manufacturing status. The provision relating to exemption on the import of machinery, equipment and other capital goods as plant for setting up of a new industrial unit, against valid contract (s) or letter (s) of credit and having the total C&F value of such imports for the project US $50 million or above also stands deleted, which, otherwise was providing exemption to the companies importing equipment for use in agriculture, telecom, solar, power/energy and renewable energy sectors etc. Consequently, importers and end users of different sectors and technologies such as agriculture, telecom, solar, power generation, etc have now become liable for higher duties and taxes in case their imported goods are covered under CGO-11/2007 or declared as manufactured locally by the Engineering Development Board (EDB). The sources said deletion of the entries and provision to the SRO has resulted in around seventy additional cases referred to EDB till date concerning solar equipment imports. EDB has been striving with limited resources to facilitate through adjudication considering different specifications, engineering standards, quality/testing procedures, useful life, etc. Several meetings of local manufacturers and importers were held for a fair/transparent and impartial decision and to balance the competent interests of both local manufacturers and importers. While importers contest the capacity of local manufacturers to produce the equipment, the process for determining the manufacturing status of the imported equipment was stretched beyond desired limit impacting timely execution of the project. Following key points have been noted while processing these cases: (i) large Engineering Procurement and Construction (EPC) projects involve performance guarantees, warranties and financing stakes which otherwise were void in case condition of part supply of local equipment was incorporated; (ii) local manufacturers on the other hand have certain grievances relating to the duty and tax regime applicable to the inputs as well as their finished products and lack of incentives to promote indigenous manufacturing; and (iii) considering the energy crisis, it was very likely that more import orders would be placed in the near future for setting up of projects related to alternative energy resources, power generation, telecom and other sectors, which in many cases were based on facilitation by the Provincial and Federal Governments to investors in such sectors. The EDB, in its summary to the Economic Co-ordination Committee (ECC) of the Cabinet submitted the following proposals to overcome the problem in short as well as in the long run: (i) the proviso import of machinery equipment and other capital goods as plant for setting up of a new industrial unit, against valid contract(s) or letter(s) of credit and having the total C&F value of such imports for the project $50 million or above deleted in the Fifth Schedule to the Customs Act, 1969, may be restored to avail exemption from determination of local manufacturing status; and (ii) further, to facilitate local manufacturers and provide them a level playing field, a working committee may be formed by the Federal Board of Revenue with representation from Ministry of Commerce/National Tariff Commission, EDB, Board of Investment and local manufacturers of energy equipment to review whether appropriate incentives can be offered to manufacturers to address their grievances and enhance their competitiveness for increased local and export sales. The ECC discussed the issue in detail and decided that the condition of local manufacturing appearing in Part I of fifth Schedule to the Customs Act, 1969 and 6th Schedule of the Sales Tax Act, 1990 shall not apply on import of machinery, equipment and other capital goods as plant for setting up of a new power unit, against valid contract (s) or letter (s) of credit and having the total C&F value of such imports for the project of US $50 million or above with the condition that it will be only for those power projects which were in IPP mode meant for supply of electricity to national grid. This has been decided in view of the fact that, due to energy shortage, development of power sector is the priority area. This measure is revenue neutral as any additional tax is a pass-on item that would increase the cost of subsidy. The ECC also decided to constitute a working committee headed by Ministry of Industries and Production with representatives from Federal Board of Revenue, Ministry of Commerce, National Tariff Commission, Engineering Development Board, Board of Investment and local manufacturers of energy equipment to review whether appropriate incentives can be offered to manufacturers to address their grievances and enhance their competitiveness for increased local and export sales.
Posted on: Fri, 17 Oct 2014 05:43:24 +0000
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