Attachment_J.12.pdf

Interim Guidance for Obtaining Exception from Taxation for USAID-Financed Activities such procurement is determined to not have been artificially segregated to stay below this threshold, such determination to be made by the cognizant C/AO in his/her absolute discretion.

(c) All Implementing Partners must obtain Tax Exceptions on all project-related procurements. To the maximum extent possible, Implementing Partners shall obtain a Tax Exception Certificate from the GoP Ministry of Finance, Economic Affairs Division ("EAD") or the relevant provincial tax authority BEFORE making a purchase. However, it is understood that this may not always be possible. For example, there could be a need for an emergency procurement that if postponed, would unacceptably delay or impede project implementation; or, as is the case with utility bills, it may be impossible to know in advance what the actual cost will be for the goods or services to be procured or to obtain a pro forma invoice. In such cases, the Implementing Partner may make the necessary procurement including the tax portion of the bill. The Implementing Partner must then promptly, within one week or less, apply for Tax Exception after the procurement. Upon receipt of the Tax Exception Certificate, the Implementing Partner must then seek reimbursement or an offset from the vendor without USAID's intervention.

Meanwhile, the Implementing Partner may invoice USAID for allowable costs excluding the host country tax portion pending a resolution of the Tax Exception request or a determination of allowability by the cognizant USAID CO/AO (see section VIII.(a) herein). If the Implementing Partner requests a determination of allowability of the tax portion because the vender was unwilling to reimburse or offset the taxes paid to the Implementing Partner, the Implementing Partner must justify to the CO/AO why they could not pursue a Tax Exception before making the purchase.

(d) Some goods are "scheduled" under Pakistani law as always being exempted from taxes, e.g., medical equipment, and no additional certification is required for the Tax-free sale of such goods.

(e) Tax Exceptions are not available to Implementing Partner personnel for personal purchases.

(f) For activity planning purposes, Implementing Partners should anticipate that it takes the EAD approximately 30 calendar days to process and issue a Tax Exception Certificate from the time it receives an application for Tax Exception. An Implementing Partner should consider the time needed to prepare its Tax Exception application as well as time necessary for USAID to process an application to EAD, which may vary depending on the amount of applications being processed. Lead times may be affected by various factors. Delays may be experienced if there are deficiencies with the Tax Exception application or if such application is unusually complicated. Implementing Partners are best served by identifying necessary procurements in advance as early as practicable in order to allot ample time for the processing of Tax Exception applications.

II. “Zero Rated” versus “Tax Exemption” This section is relevant primarily to the procurement of goods in Pakistan. Under Pakistani Tax law, there are two categories of Tax exclusion: "exemption" and "zero rated". If granted an exemption, an Implementing Partner makes a procurement that is exempted from the GST normally added by the vendor at the point of sale to the Implementing Partner. GST normally includes the vendor's costs with respect to value added tax it has paid on such goods. If a procurement is granted a zero rated status, an Implementing Partner similarly makes a procurement that is exempted from the GST. However, under a zero rated regime, the vendor is entitled to file for reimbursement of any excluded Taxes with the Federal Board of Revenue of Pakistan ("FBR"). Unless otherwise approved by the C/AO, all applications for Tax Exception will be for exempt status.

III. Sub-Federal Level Taxes Implementing Partners must also seek exemptions from all provincial taxes. Exceptions for provincially levied taxes are provided by the designated provincial revenue boards/authorities, except for Baluchistan and Islamabad Capital Territory, which are processed by EAD. Implementing Partners must follow the procedures outlined in Section VI, herein. Implementing Partners shall submit requests for exemption from provincial taxes through their respective C/AORs instead of applying directly to the provincial tax authorities. When submitting requests for exemption from provincial taxes to their C/AOR, the Implementing Partner must specify the type and nature of the tax.

IV. Sub-Awardees At this time, a sub-awardee should obtain an approved Tax Exception Certificate through its prime awardee. Application for a Tax Exception for a procurement being processed for a sub-awardee may increase lead and processing times. Additional guidance may follow.

V. Tax Reporting Requirements Standard clauses and provisions already included in all contracts and assistance instruments require all Implementing Partners to file an annual report by April 16th of each year listing all Taxes paid and not reimbursed for USAID-funded projects. All Implementing Partners are hereby notified that all Taxes paid must be included in this annual report. For contracts and task orders, the standard Tax reporting requirements are found in Special Provision ADS 302.3.8.8 REPORTING OF FOREIGN TAXES. For assistance agreements to US organizations, the requirement is found at RAA12 - REPORTING HOST GOVERNMENT TAXES. For assistance agreements with non-US organizations, the requirement is found at RAA10 - REPORTING HOST GOVERNMENT TAXES. Please follow carefully the guidance for completing this report.

VI. Procedures for Seeking Exception from Taxes Other than Import Customs

C/AORs can find the form of Tax Exception Certificate and associated cover letter at the USAID/Pakistan Intranet site under Acquisition and Assistance/Tax and Customs Exemptions Templates.

1. C/AOR provides to the Implementing Partner a partially completed Tax Exception Certificate application to include an FBR concurrence number; name of the project/activity; and reference to the PEPA.

2. Implementing Partner completes the Tax Exception Certificate application. Each item or service to be purchased must be listed in the form as required. The application should be copied to:

a. Relevant Tax authority in accordance with the vendor’s place of registration

b. USAID/Pakistan

c. EAD

3. The Implementing Partner submits to the C/AOR a complete Tax Exception Certificate application including:

a. one original and two (2) copies of each pro forma invoice signed and stamped by the vendor and the Implementing Partner; and

b. three (3) original Tax Exception Certificate forms signed and stamped by the Implementing Partner.

4. The C/AOR reviews the exception application to ensure that the goods and services to be procured are necessary for project implementation.

5. The C/AOR drafts a cover letter addressed to EAD, or the relevant provincial authority, and adds the letter to the exception application.

6. The C/AOR submits a hard copy of the exception application to the USAID/OAA within five (5) working days of receipt from the Implementing Partner.

7. OAA reviews the package for completeness/correctness and provides the C/AOR with an acceptance date. The C/AOR passes this information on to the Implementing Partner for record keeping purposes. (NOTE: Implementing Partner should follow up with their respective C/AOR for an acceptance date after five (5) working days of submission of the request.)

8. OAA records exception application data in a tracking database, and submits the exception application to EAD signed by the Director of OAA, or designee.

9. EAD provides approved Tax Exception Certificate to OAA.

10. OAA sends the Tax Exception Certificate to the C/AOR who in turn passes it on to the

Implementing Partner.

11. The Implementing Partner presents the Tax Exception Certificate to the vendor who will accept it in lieu of the Tax amount.

VII. Procedures for Seeking Exception from Import Customs

C/AORs can find the form of Tax Exception Certificate and associated cover letter at the USAID/Pakistan Intranet site under Acquisition and Assistance/Tax and Customs Exemptions Templates.

1. C/AOR provides to the Implementing Partner a partially completed Tax Exception Certificate application to include an FBR concurrence number; name of the project/activity; and reference to the PEPA.

2. Implementing Partner completes the Tax Exception Certificate application. Each item to be imported must be listed in the form as required. The application should be copied to:

a. Chairman, Federal Board of Revenue, Islamabad

b. Import by sea: Collector of Customs, Appraisement Department ([Specify Port]). Note regarding Port: The clearing agent of the Implementing Partner must be able to provide the precise location of the consignment (Port of Karachi-East, Port of Karachi-West, Port Qasim or Port Gwadar), so that the exception documents are delivered to the correct appraisement department.

c. Import by air: Collector of Customs in the relevant city.

d. USAID/Pakistan

e. EAD

3. The Implementing Partner submits to the C/AOR a complete Tax Exception application, including:

a. four copies of each pro forma invoice signed and stamped by the Implementing Partner;

b. four copies of each bill of lading or airway bill and packing list from the exporter (with originals to follow upon receipt by the Implementing Partner); and

c. four original Tax Exception Certificate form signed and stamped by the Implementing

Partner.

4. The C/AOR reviews the exception application to ensure that the goods to be procured are necessary for project implementation. The C/AOR must sign and stamp the copies of the pro forma invoice(s) and bill(s) of lading or airway bill.

5. The C/AOR drafts a cover letter addressed to EAD and adds the letter to the exception application.

6. The C/AOR submits a hard copy of the exception application to OAA within five (5) working days of receipt from the Implementing Partner.

7. OAA reviews the package for completeness/correctness and provides the C/AOR with an acceptance date. The C/AOR passes this information on to the Implementing Partner for record keeping purposes. (NOTE: Implementing Partner should follow up with their respective C/AOR for an acceptance date after five (5) working days of submission of the request.)

8. OAA records exception application data in a tracking database, and submits the exception application to EAD signed by the Director of the OAA, or designee.

9. EAD provides approved Tax Exception Certificate to OAA.

10. OAA sends the Tax Exception Certificate to the C/AOR who in turn passes it on to the

Implementing Partner.

11. The Implementing Partner’s clearing agent presents the Tax Exception Certificate to customs officials for clearing consignments from port.

12. Implementing Partners must provide original invoices, bills of lading or airway bills promptly upon receipt to their C/AOR for forwarding to EAD.

Note: Required documentation for import custom exception procedures must submitted promptly as Pakistani shipping ports will not allow storage of shipments for more than 7 days before demurrage charges begin to accrue.

VIII. Miscellaneous

(a) While significant progress has been made recently to make the procedures described herein more efficient, USAID understands that on occasion, through no fault of the Implementing Partner, Tax Exception Certificates may not be obtained in a timely manner, or at all. It is also possible that an Implementing Partner may have followed the procedures set forth in Section I. (c) herein and was unable to obtain reimbursement or an offset from a vendor. In such cases, the Implementing Partner must submit, through their C/AOR, a written justification to the cognizant CO/AO briefly and clearly justifying that they made a good faith effort to obtain a Tax Exception Certificate and/or reimbursement. This justification must also explain why it was an emergency procurement and why the Implementing Partner could not wait to seek Tax Exception before making the purchase as is the preferred process. The cognizant CO/AO may make a determination that the Taxes paid in such cases are an allowable cost, but may require the Implementing Partner to wait up to 3 invoicing cycles. The Implementing Partner must obtain this determination in writing from the cognizant CO/AO before submitting an invoice to USAID for the Taxes paid. The written determination must be retained in the Implementing Partner's files for audit purposes.

(b) Each Implementing Partner must preserve each Tax Exception Certificate and associated invoices for financial audits in accordance with each such partner's contractual/agreement requirements and as it may be otherwise instructed by USAID/Pakistan. Prime Implementing Partners are expected to preserve such records in respect of sub-awardees.

(c) Notwithstanding any administrative assistance that may be provided by USAID/Pakistan, it remains the responsibility of each Implementing Partner to abide by Pakistani laws, rules and regulations in obtaining any Tax Exception Certificate. Implementing Partners may need to consult their own professional advisors regarding compliance with Pakistani law, rules and regulations.

USAID appreciates the cooperation of all involved parties in the Tax Exception process. Implementing Partners should notify their C/AOR of any difficulties they may encounter with the procedures described herein.

This guidance is intended for C/AORs and USAID Implementing Partners only. This guidance should not be shared outside of the intended recipients. This guidance does not purport to interpret Pakistani law, rules, or regulations.

Attachments:

Flowchart 1 for Normal Purchases Flowchart 2 for Emergency Purchases

FLOW CHART NO.1: TAX GUIDANCE FOR IMPLEMENTATING PARTNERS FOR

NORMAL PURCHASES

1. In case reimbursement is received after C/AO’s allowability of cost, IP must refund to USAID the amount reimbursed by the Government of Pakistan Federal and/or Provincial Authorities.

IP requests C/AO for allowability of tax cost based on documented due diligence and best faith effort in accordance with FAR/CFR.

USAID forwards complete package after internal clearances to EAD/Provincial Tax

Authority for onward processing.

IP receives tax exemption certificate?

IP provides Tax Exemption Certificate to Vendor

Vendor accepts exemption?

IP submits invoice to USAID without tax.

IP submits invoice to USAID inclusive of tax and reports to USAID as per the Annual Tax Reporting

Requirement1

IP submits package to C/AOR in accordance with

Section VI or VII of the guidance, whichever is applicable.

Yes

No

Yes

No

C/AO Allows the cost?

No

Yes

Starts Here….

FLOW CHART NO.2: TAX GUIDANCE FOR IMPLEMENTATING PARTNERS FOR

EMERGENCY PURCHASES

1. Examples of emergency purchases are generator breakdown repair, natural disasters, and utilities.

2. In case reimbursement is received after C/AO’s allowability of cost, IP must refund to USAID the amount reimbursed by the Government of Pakistan Federal and/or

Provincial Authorities.

USAID forwards complete package after internal clearances to EAD/Provincial Tax

Authority for onward processing.

IP requests C/AO for allowability of tax cost based on documented due diligence and best faith effort in accordance with FAR/CFR.

IP receives tax exemption certificate?

IP provides Tax Exemption Certificate to Vendor

Vendor agrees to refund or offset tax?

IP does not claim tax amount from USAID.

IP submits invoice to USAID to bill the previously unclaimed tax amount and report per the Annual Tax Reporting Requirement2

IP submits package to C/AOR in accordance with Section VI of the guidance and bills USAID the amount exclusive of Tax.

Yes

No

Yes

No

C/AO Allows the cost?

No

Yes

IP makes the emergency purchase1 and pays full amount including taxes to the vendor.

Starts Here….