The case’s specifics showed that after the federally administered tribal areas (FATA) and provincially administered tribal areas (PATA) merged with Khyber Pakhtunkhwa, the government gave the benefit of exemption from income tax collection and sales tax collection on raw material imports to the manufacturing facilities located in these areas.
The Federal Board of Revenue (FBR), among others, introduced the system of raw material quota distribution based on the installed production capacity of the industrial units to ensure that the imported raw materials by these units are utilised purely for internal consumption to make finished goods.
The Directorate General of Input Output Coefficient Organization and the Regional Tax Office (RTO), Peshawar, were tasked for determining the quota (IOCO). Teams were occasionally formed for this purpose to assess the production potential of the units and assign quotas of raw materials to them based on that assessment. On reviewing the quota-related records, it was discovered that manufacturing units had taken advantage of extra quota through deception.
Shaukat Hayat, the Commissioner Corporate Zone, and his competent staff recognised the primary causes of the misuse of quota and implemented appropriate remedial steps as per the instructions of Aqeel Ahmed Siddiqui, Chief Commissioner RTO, Peshawar, in order to reverse this trend.
These efforts have resulted in quota across major sectors (steel, ghee, textile, plastic, etc.) being banned as of November 2022, with a market value of approximately Rs. 11,659.4 million and revenue implications of approximately Rs. 2,219.62 million.
Ghost units, false installed capacity, and owner lack of cash were among the justifications for quota disallowance. Non-filing of returns, suspension, and non-payment of sales tax on taxable supply are all legal difficulties.
The lack of technical knowledge regarding the incompatibility of raw materials with machinery, calculating production in relation to electricity consumption, and identifying limiting factors in the manufacturing process were additional reasons for quota disallowance. There is also a limited market for finished goods.