BUDGET PROPOSALS (2009-10)
IMRAN AFZAL - FCA
PROPOSED AMENDMENTS IN
SALES TAX LAW
Sales Tax Rate Reduction
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
Supplies made without or during the
period in which registration is pending.
Immediate provisional sales tax
Value of supply
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.
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‟ 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) .
It is suggested that section 2(47) of Sales Tax Act 1990 should be modified
“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
The principle of 'joint and
several liability' in Section
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
Adjustable Input Tax
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
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.
There should be no time limit for issuance of
debit/credit note as the taxpayers have already
approved and accounted for the transaction.
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.
Black listing or suspension should only be through
an order in original with prospective effect.
Sales Tax Audits
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.
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
There is no mechanism for revision under
section 26 of the Act for special return.
Reference of section 27 may also be
incorporated in section 26(3) of the Act.
Conflict in Section 45B
and Rule 71
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.
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
Withdraw time limit of one year.
Matching Interest Rate
for Delayed Refunds
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
Interest on delayed refund should be the same as default
surcharge i.e. 18% p.a.
Section 73 and ground
Section 73 does not deal with the following
– Adjustments or receivable and payables between buyer
– payments by third parties, like guarantors etc.
Section 73 may be amended to cater the above
Apportionment Of Input
Tax On Exports
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.
A formula / mechanism identical to the „Apportionment of
Input Tax Rules‟ (taxable and exempt supplies) should be
introduced in the statute.
Sales Tax Refund
Huge refunds lying with the department
Liquidity issues to general public
Refunds not replicated over STARR, the department desires the refund
– 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
onus of verification is transferred upon the refund claimant
Refund claimant should only be required to provide documents in his
control. Department should initiate proceedings against the defaulting