20000307

CBR clarifies proration of profits on export, sale proceeds

SOHAIL SARFRAZ

ISLAMABAD: The Central Board of Revenue has clarified that prorating of profits between export sales and local sales regarding assessee maintaining books of accounts has to be done in accordance with Rule 26 of the Income Tax Rules, 1982.

The CBR was receiving queries about the method of proration of profits between the export proceeds falling under Section 80CC and local sales.

According to the circular No. 5/2000 of Income Tax issued on Monday, Section 80CC of the IT Ord. 1979 read with paragraph-CCC of Part-I of the first schedule to the Ordinance provides for presumptive taxation of income of exporters and where the assessee has no income other than the income referred to in sub-section (1) of Section 80CC in respect of which tax has been deducted under sub-section (5A) of Section 50. The tax so deducted is deemed to be final discharge of his tax liability and assessee is not required to file the return of total income under Section 55 of the IT Ord 1979.

However, return of income is to be filed in case the assessee derives income from any other source e.g. commission brokerage or local sales, etc. The CBR vide circular No. 20 of 1992 of July 1, 1992 has provided special treatment to exporters maintaining books of accounts, which is as follows: Local sales of goods (manufactured for export) as well as waste material not constituting more than 20 percent of such production, may also be treated as export sale if the assessee opts to pay tax on such sales at the rate applicable to export sales under Section 80CC.

Where the income from exports is inseparable from commission, brokerage and other receipts and the assessee cannot prove the extent of overhead expenses relating to non-export receipts. Allocation of expenses may be made on a pro-rate basis in the same ratio as the receipts not covered by Section 80CC bear the gross profit on the export sale.