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					BUDGET PROPOSALS (2009-10)



SALES TAX



                    IMRAN AFZAL - FCA
PROPOSED AMENDMENTS IN
SALES TAX LAW
Sales Tax Rate Reduction

Proposal

   The Government to bring down the
    prevailing rate of GST from 16 percent
    to 12 percent.
   the present rates of sales tax of 21
    percent, 18.5 percent, 16 percent be
    merged into a single rate of sales tax.
Definition and implications
of tax fraud
Issue
 Supplies made without or during the
  period in which registration is pending.

Proposal
 Immediate provisional sales tax
  registration.
Value of supply
Issue

   In terms of Federal Excise Notification 655(I)/2007 dated 29 June 2007,
    Special Excise Duty (SED) is not taken into account for the purpose of
    computing “value of supply” under Sales Tax Act 1990. This exemption is
    incorrectly placed in Federal Excise Law instead of Sales Tax and thus lacks
    due intended legal support.

Proposal

   It is suggested that section 2(46)(a) of Sales Tax Act 1990 should be
    modified as follows:

     –   “value of supply” means;- in respect of taxable supply, the consideration in money
         including all Federal and Provincial duties except special excise duty levied under
         section 3A of Federal Excise Act 2005 and taxes, if any, which the supplier receives
         from the recipient for that supply excluding the amount of tax”.
Wholesaler
Issue

   „wholesaler‟ includes a dealer and means any person who carries on, whether
    regularly or otherwise, the business of buying and selling goods by wholesale
    or of supplying or distributing goods, directly or indirectly, by wholesale for
    cash or deferred payment or for commission or other valuable consideration
    or stores such goods belonging to others as an agent for the purpose of sale;
    and includes a person supplying taxable goods to a person who deducts
    income tax at source under the Income Tax Ordinance, 2001 (XLIX of 2001) .

Proposal

   It is suggested that section 2(47) of Sales Tax Act 1990 should be modified
    as follows:

        “Wholesaler” means any person who carries on, whether regularly or otherwise the
        business of buying and selling goods by wholesale or supplying or distributing
        goods, directly or indirectly, by wholesale for cash or deferred payment or other
        valuable consideration”.
The principle of 'joint and
several liability' in Section
8A
Proposal

   This section should be deleted as this
    is against the principles of natural
    justice where a person can be
    punished for an offence not committed
    by him.
Adjustable Input Tax

Proposal

   Section 8B of sales tax should be
    abolished which restricts:
    – input claim upto 90% of the output and;
    – claim of sales tax on fixed assets in 12
      equal monthly installments.
Debit/ Credit Note
Issue

   The Sales Tax Rules issued vide SRO 555(I)/2006
    dated. 5th June, 2006 specifies the time limit of
    180 days for issuance of debit and credit notes.

Proposal

   There should be no time limit for issuance of
    debit/credit note as the taxpayers have already
    approved and accounted for the transaction.
De-Registration
Issue

   When registration of a taxpayer is suspended due
    to any reason, its effect is retrospective, i.e. from
    the date of registration, the buyers of such
    blacklisted supplier are severely affected.

Proposal

   Black listing or suspension should only be through
    an order in original with prospective effect.
Sales Tax Audits
Issues

   Multiple audits of same tax period under different names,
     –   i.e., investigative audit,
     –   desk audit,
     –   audit by DRRA
     –   audit for abnormal profile, etc. Under section 25, the tax department may
         conduct audit of registered person only once a year. Also, the terms
         „Desk Audit‟, „Investigative Audit‟ „Abnormal Tax Profile‟ have not been
         defined in the statute.

Proposal

   Audit by whatever name should only be conducted once a year in
    compliance with sub section 2 of section 25.
   Deletion of second proviso to sub section 2 of section 25.
Revision of Special Sales
Tax Returns
Issue

   There is no mechanism for revision under
    section 26 of the Act for special return.

Proposal

   Reference of section 27 may also be
    incorporated in section 26(3) of the Act.
Conflict in Section 45B
and Rule 71
Issues

   Section 48 read with Rule 71 empower initiation of
    recovery proceedings at the end of 30 days from the
    date of order

   Section 45B allows the taxpayer to file an appeal with
    the Office of Collector (Appeals) within 30 days from the
    date of receipt of order.

Proposal

   Recovery Rules may be amended and recovery
    proceedings may only be enforced after 30 days of
    service of order to the taxpayer.
Refund - Section 66

Proposal

   Withdraw time limit of one year.
Matching Interest Rate
for Delayed Refunds
Issues

   Default surcharge rate for delayed payment of sales tax
    liability is 18% p.a.

   Delayed payments of due tax refunds costs 6% p.a to the
    department

Proposal

   Interest on delayed refund should be the same as default
    surcharge i.e. 18% p.a.
Section 73 and ground
realities
Issues

   Section 73 does not deal with the following
    situations
    – Adjustments or receivable and payables between buyer
      and sellers
    – payments by third parties, like guarantors etc.

Proposal

   Section 73 may be amended to cater the above
    stated issues
Apportionment Of Input
Tax On Exports
Issues

   Tax attributed to exports and zero rated supplies is refundable
    to the registered person. However, the law does not prescribe
    any formula / method of proration of input tax between
    exports and local supplies.

Proposal

   A formula / mechanism identical to the „Apportionment of
    Input Tax Rules‟ (taxable and exempt supplies) should be
    introduced in the statute.
        Sales Tax Refund
Issue
   Huge refunds lying with the department
   Liquidity issues to general public
   Refunds not replicated over STARR, the department desires the refund
    claimant to:

     – comply with Standing Order 2 of 2007 which requires (buyer) to furnish
       seller‟s returns, accounts, statements, summaries.

            Suppliers declines to share / furnish their returns, summaries and other
             statutory declarations
            onus of verification is transferred upon the refund claimant
Proposal
   Refund claimant should only be required to provide documents in his
    control. Department should initiate proceedings against the defaulting
    supplier separately.
Thank You

				
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