NBR to offer VAT exemption to local firms

The revenue board has decided to offer Value Added Tax (VAT) exemption to local companies participating in international tenders as provided to foreign companies in a bid to ensure a level-playing field.
The VAT wing of the National Board of Revenue (NBR) is preparing rules to implement the decision that has been incorporated in the Finance Act-2013.
Currently, the local companies have to pay 15 per cent VAT on procurement of machinery for any large project, while the foreign companies are enjoying VAT exemption, in accordance with the international or bilateral treaty.
Foreign companies are enjoying tax exemption while importing machinery for large projects. But local companies have to pay VAT when they procure the similar machinery from domestic or international sources.
"We will consider procurement of machinery by both foreign and local companies tax-free. But the payment will have to be made in foreign exchange," said a senior VAT official.
The measures will be implemented after the formulation of rules, he added.
He said tax rules should be uniform for both foreign and local companies participating in international tender.
"The government has addressed the issue by amending the VAT law in the budget for fiscal year 2013-14. The amended law relates to the formulation of related rules to implement the measure," he added.
The rules will specify the mode and procedure of payment on procurement of machinery by the local companies, the officials said.
Industry insiders said the discriminatory tax system has created an uneven competition for the local companies. The companies requested the revenue board several times in the past to resolve the matter.
Following concern expressed by the local companies, the tax authorities have addressed the issue. Usually, procurement through international tenders involves huge sum of money.
For foreign companies, the NBR considers the procurement of machinery as 'export to the project site'. After formulation of the rules, the taxmen will allow local companies' procurement of machinery from local or foreign sources considering it as export.