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BUDGET PROPOSALS (2009-10)

SALES TAX

IMRAN AFZAL - FCA

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PROPOSED AMENDMENTS INPROPOSED AMENDMENTS IN

SALES TAX LAWSALES TAX LAW

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Sales Tax Rate ReductionSales Tax Rate Reduction

ProposalProposal

The Governmentto bring downtheThe Governmentto bring downtheprevailingrate ofGST from 16 percentprevailingrate ofGST from 16 percentto 12 percent.to 12 percent.

the presentratesofsalestaxof21the presentratesofsalestaxof21percent, 18.5percent, 16 percentbepercent, 18.5percent, 16 percentbemerged intoasingle rate ofsalestax.merged intoasingle rate ofsalestax.

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Definition and implicationsDefinition and implications

of tax fraudof tax fraud

IssueIssue

Suppliesmade withoutor duringtheSuppliesmade withoutor duringtheperiod inwhich registrationispending.period inwhich registrationispending.

ProposalProposal

Immediate provisionalsalestaxImmediate provisionalsalestaxregistration.registration.

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Value of supplyValue of supply

IssueIssue

Intermsof Federal Excise Notification 655(I)/2007 dated 29 June 2007,Intermsof Federal Excise Notification 655(I)/2007 dated 29 June 2007,Special Excise Duty(SED)isnottakenintoaccountforthe purpose ofSpecial Excise Duty(SED)isnottakenintoaccountforthe purpose of

computing value ofsupplyunder Sales Tax Act1990. This exemptioniscomputing value ofsupplyunder Sales Tax Act1990. This exemptionisincorrectlyplaced in Federal Excise Lawinstead of Sales Taxand thuslacksincorrectlyplaced in Federal Excise Lawinstead of Sales Taxand thuslacksdue intended legalsupport.due intended legalsupport.

ProposalProposal

Itissuggested thatsection 2(46)(a)of Sales Tax Act1990 should beItissuggested thatsection 2(46)(a)of Sales Tax Act1990 should bemodified asfollows:modified asfollows:

value ofsupplymeans;value ofsupplymeans;-- inrespectoftaxable supply,the considerationinmoneyinrespectoftaxable supply,the considerationinmoneyincludingall Federaland Provincial dutiesincludingall Federaland Provincial duties exceptspecial excise dutylevied underexceptspecial excise dutylevied undersection 3A ofFederal Excise Act2005section 3A ofFederal Excise Act2005 and taxes,ifany,which the supplierreceivesand taxes,ifany,which the supplierreceivesfromthe recipientforthatsupply excludingthe amountoftax.fromthe recipientforthatsupply excludingthe amountoftax.

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WholesalerWholesaler

IssueIssue

wholesalerincludesa dealerand meansanypersonwhocarrieson,whetherwholesalerincludesa dealerand meansanypersonwhocarrieson,whetherregularlyorotherwise,the businessofbuyingand sellinggoods bywholesaleregularlyorotherwise,the businessofbuyingand sellinggoods bywholesale

orof

supplying

or

distri

buting

goo

ds,

dire

ctlyor

in

dire

ctly,b

yw

hol

esal

efor

or

of

supplying

or

distri

buting

goo

ds,

dire

ctlyor

in

dire

ctly,b

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esal

efor

cash or deferred paymentcash or deferred paymentorforcommissionorforcommissionorothervaluable considerationorothervaluable considerationorstoressuch goods belongingtoothersasanagentforthe purpose ofsale;orstoressuch goods belongingtoothersasanagentforthe purpose ofsale;and includesapersonsupplyingtaxable goodstoapersonwho deductsand includesapersonsupplyingtaxable goodstoapersonwho deductsincome taxatsource underthe Income Tax Ordinance, 2001 (

XLIXof2001)income taxatsource underthe Income Tax Ordinance, 2001 (XLIXof2001)..

ProposalProposal

Itissuggested thatsection 2(47)of Sales Tax Act1990 should be modifiedItissuggested thatsection 2(47)of Sales Tax Act1990 should be modifiedasfollows:asfollows:

Wholesalermeansanypersonwhocarrieson,whetherregularlyorotherwise theWholesalermeansanypersonwhocarrieson,whetherregularlyorotherwise thebusinessof buyingand sellinggoods bywholesale orsupplyingor distributingbusinessof buyingand sellinggoods bywholesale orsupplyingor distributinggoods, directlyorindirectly, bywholesale forcash or deferred paymentorothergoods, directlyorindirectly, bywholesale forcash or deferred paymentorothervaluable consideration.valuable consideration.

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The principle of 'joint andThe principle of 'joint andseveral liability' in Sectionseveral liability' in Section8A8A

ProposalProposal

Thissectionshould be deleted asthisThissectionshould be deleted asthisisagainstthe principlesofnaturalisagainstthe principlesofnatural

justice where apersoncan bejustice where apersoncan bepunished foranoffence notcommittedpunished foranoffence notcommittedby him.by him.

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Adjustable Input TaxAdjustable Input Tax

ProposalProposal

Section 8B ofsalestaxshould beSection 8B ofsalestaxshould beabolished which restricts:abolished which restricts:

inputclaimupto 90% ofthe outputand;inputclaimupto 90% ofthe outputand;

claimofsalestaxonfixed assetsin 12claimofsalestaxonfixed assetsin 12equalmonthlyinstallments.equalmonthlyinstallments.

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Debit/ Credit NoteDebit/ Credit Note

IssueIssue

The Sales Tax Rulesissued vide SRO555(I)/2006The Sales Tax Rulesissued vide SRO555(I)/2006dated.5th June, 2006 specifiesthe time limitofdated.5th June, 2006 specifiesthe time limitof180 daysforissuance ofdebitand creditnotes.180 daysforissuance ofdebitand creditnotes.

ProposalProposal

There should be notime limitforissuance ofThere should be notime limitforissuance ofdebit/creditnote asthe taxpayers have alreadydebit/creditnote asthe taxpayers have alreadyapproved and accounted forthe transaction.approved and accounted forthe transaction.

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DeDe--RegistrationRegistration

IssueIssue

Whenregistrationofataxpayerissuspended dueWhenregistrationofataxpayerissuspended duetoanyreason,its effectisretrospective,i.e.fromtoanyreason,its effectisretrospective,i.e.fromthe date ofregistration,the buyersofsuchthe date ofregistration,the buyersofsuchblacklisted supplierare severelyaffected.blacklisted supplierare severelyaffected.

ProposalProposal

Blacklistingorsuspensionshould only be throughBlacklistingorsuspensionshould only be throughanorderinoriginalwith prospective effect.anorderinoriginalwith prospective effect.

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Sales Tax AuditsSales Tax Audits

IssuesIssues

Multiple auditsofsame taxperiod under differentnames,Multiple auditsofsame taxperiod under differentnames, i.e.,investigative audit,i.e.,investigative audit,

deskaudit,deskaudit, auditby DRRAauditby DRRA auditforabnormalprofile, etc. Undersection 25,the tax departmentmayauditforabnormalprofile, etc. Undersection 25,the tax departmentmay

conductauditofregistered persononlyonce ayear. Also,the termsconductauditofregistered persononlyonce ayear. Also,the termsDesk Audit,Investigative AuditAbnormal TaxProfilehave notbeenDesk Audit,Investigative AuditAbnormal TaxProfilehave notbeendefined inthe statute.defined inthe statute.

ProposalProposal

Auditbywhatevername should only be conducted once ayearinAuditbywhatevername should only be conducted once ayearincompliance with sub section 2 ofsection 25.compliance with sub section 2 ofsection 25.

Deletionofsecond provisotosub section 2 ofsection 25.Deletionofsecond provisotosub section 2 ofsection 25.

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Revision of Special SalesRevision of Special Sales

Tax ReturnsTax ReturnsIssueIssue

There isnomechanismforrevisionunderThere isnomechanismforrevisionundersection 26 ofthe Actforspecialreturn.section 26 ofthe Actforspecialreturn.

ProposalProposal

Reference ofsection 27 mayalso beReference ofsection 27 mayalso beincorporated insection 26(3)ofthe Act.incorporated insection 26(3)ofthe Act.

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Conflict in Section 45BConflict in Section 45B

and Rule 71and Rule 71IssuesIssues

Section48 read with Rule 71 empowerinitiationofSection48 read with Rule 71 empowerinitiationof

recoveryproceedingsatthe end of30 daysfromtherecoveryproceedingsatthe end of30 daysfromthedate oforderdate oforder

Section45B allowsthe taxpayertofile anappealwithSection45B allowsthe taxpayertofile anappealwiththe Office ofCollector(Appeals)within30 daysfromthethe Office ofCollector(Appeals)within30 daysfromthedate ofreceiptoforder.date ofreceiptoforder.

ProposalProposal

Recovery Rulesmay be amended and recoveryRecovery Rulesmay be amended and recoveryproceedingsmayonly be enforced after30 daysofproceedingsmayonly be enforced after30 daysof

service ofordertothe taxpayerservice ofordertothe taxpayer..

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RefundRefund -- Section 66Section 66

ProposalProposal

Withdrawtime limitofone year.Withdrawtime limitofone year.

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Matching Interest RateMatching Interest Rate

for Delayed Refundsfor Delayed RefundsIssuesIssues

Defaultsurcharge rate for delayed paymentofsalestaxDefaultsurcharge rate for delayed paymentofsalestax

liabilityis 18% p.a.liabilityis 18% p.a.

Delayed paymentsofdue taxrefundscosts 6% p.atotheDelayed paymentsofdue taxrefundscosts 6% p.atothedepartmentdepartment

ProposalProposal

Intereston delayed refund should be the same as defaultIntereston delayed refund should be the same as defaultsurcharge i.e. 18% p.a.surcharge i.e. 18% p.a.

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Section 73 and groundSection 73 and ground

realitiesrealitiesIssuesIssues

Section 73 doesnotdealwith the followingSection 73 doesnotdealwith the followingsituationssituations Adjustmentsorreceivable and payables between buyerAdjustmentsorreceivable and payables between buyer

and sellersand sellers payments bythird parties,like guarantors etc.payments bythird parties,like guarantors etc.

ProposalProposal

Section 73may be amended tocaterthe aboveSection 73may be amended tocaterthe abovestated issuesstated issues

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Apportionment Of InputApportionment Of Input

Tax On ExportsTax On ExportsIssuesIssues

Taxattributed to exportsand zerorated suppliesisrefundableTaxattributed to exportsand zerorated suppliesisrefundable

tothe registered person. However,the law doesnotprescribetothe registered person. However,the law doesnotprescribeanyformula/method ofprorationofinputtax betweenanyformula/method ofprorationofinputtax betweenexportsand localsupplies.exportsand localsupplies.

ProposalProposal

A formula/mechanismidenticaltotheApportionmentofA formula/mechanismidenticaltotheApportionmentofInputTax Rules(taxable and exemptsupplies)should beInputTax Rules(taxable and exemptsupplies)should be

introduced inthe statute.introduced inthe statute.

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Sales Tax RefundSales Tax RefundIssueIssue

Huge refundslyingwith the departmentHuge refundslyingwith the department Liquidityissuesto generalpublicLiquidityissuesto generalpublic Refundsnotreplicated over STARR,the departmentdesiresthe refundRefundsnotreplicated over STARR,the departmentdesiresthe refund

claimantto:claimantto:

complywith Standing Order 2 of2007 which requires(buyer)tofurnishcomplywith Standing Order 2 of2007 which requires(buyer)tofurnishsellersreturns,accounts,statements,summaries.sellersreturns,accounts,statements,summaries.

Suppliers declinestoshare /furnish theirreturns,summariesand otherSuppliers declinestoshare /furnish theirreturns,summariesand otherstatutory declarationsstatutory declarations

onusofverificationistransferred uponthe refund claimantonusofverificationistransferred uponthe refund claimant

ProposalProposal Refund claimantshould only be required toprovide documentsin hisRefund claimantshould only be required toprovide documentsin his

control. Departmentshould initiate proceedingsagainstthe defaultingcontrol. Departmentshould initiate proceedingsagainstthe defaultingsupplierseparately.supplierseparately.

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Thank YouThank You