The contract manufacturers will enjoy a simplified VAT process for the production and supply of goods under a new guideline.
The National Board of Revenue (NBR) issued the guideline on Tuesday to help the contract manufacturers comply with the VAT law without any confusion.
The VAT wing has provided a detailed procedure of production and supply of goods and procedures of record-keeping by both main manufacturers and contract manufacturers.
Officials said there was no clear guideline for manufacturers and contract manufacturers in the VAT and Supplementary Duty Act - 2012.
Such manufacturers had to face different queries by the VAT officials on record keeping and the process of production and supply in the absence of the guideline, the officials said.
The VAT officials will now be able to track the supply chains of contact manufacturers if they follow the prescribed process of maintaining accounts.
Contract manufacturing is a common practice. Under the system, a factory gives contracts to other factories to produce its goods to expedite the overall production process and reduce the lead time of exports.
According to the guideline, the main owner of the goods and contract manufacturers must enter into an agreement completely compatible with the existing Contract Act-1872.
They have to maintain records as per the VAT law.
The owner of the goods will issue two sets of invoices under the VAT 6.4 form at the time of supplying raw materials to the contract manufacturers. They have to preserve the copies of the invoice.
For supplying the goods to the owners back, the contract manufacturers will have to issue an input-output coefficient.
The manufacturers must carry the main copy of the invoice at the time of transporting the goods in vehicles. They will have to maintain documents as per the VAT law.