Some registered taxpayers, liable to file quarterly sales tax returns, are receiving notices from Inland Revenue officers to file monthly returns, indicating that there are flaws in the Federal Board of Revenue (FBR) automated system which can not distinguish between quarterly and monthly filers of returns.
Waheed Shahzad Butt, a leading Lahore-based tax lawyer, told Business Recorder here on Wednesday that the FBR's electronic system cannot differentiate between the quarterly and monthly sales tax return filers and has issued penalty notices to certain categories of taxpayers under different sales tax laws. This can be proved with the help of some notices of monthly non-filing of returns issued to registered persons liable to file quarterly sales tax returns.
Taxpayers are facing difficulties while contesting wrong notices from FBR's field formations for levying penalty u/s 33 of the Sales Tax Act, 1990 for alleged non-filing of sales tax returns. In some cases, fully compliant taxpayer has been disclosed by the FBR electronic system as 'Non-Active', blocking all payments and business activities of the registered persons.
For example, a taxpayer is not obliged to file monthly sales tax return due to status of 'Retailer', but only quarterly sales tax returns are due under Rule 7 of the Sales Tax Special Procedure Rules, 2007. Contrary to this, some retailers have received notices of non-filing of monthly sales tax returns.
He said that issuance of the penalty notices u/s 26(1), read with section 33 and section 11 of the Sales Tax Act, 1990, are based on grave errors in the FBR electronic system and non-serious/casual attitude of Inland Revenue officers to issue penalty notices, without considering the applicable law.
The tax expert pointed out that such wrong notices have been received by taxpayers time and again just due to some flaws in the FBR electronic system. As per provisions of the Sales Tax Act, all registered taxpayers are not obliged to file monthly sales tax returns due to applicability of Sales Tax Special Procedure Rules in case of certain defined categories of taxpayers. According to Rule 7 and Rule 20(2)(c) of the Sales tax Special Procedure Rules, 2007 certain categories of registered persons are obliged to submit quarterly sales tax returns only, instead of monthly submission.
Due to applicability of Sales Tax Special Procedure Rules 2007 for payment of sales tax and on the basis of status of the registered taxpayers, monthly sales tax returns are not due, but quite amazingly the system created a default for the non-filing of certain sales tax monthly returns which were never due under the Sales Tax Act, 1990 read with Sales Tax Special Procedure Rules 2007, Waheed explained.
The tax lawyer added that reason for 'Non-Active or Inactive' status has also been witnessed in some cases solely due to non-filing of certain tax period sales tax returns. These cases have clearly pointed towards some errors whereby FBR system is not observing/following/considering the relevant provision of the applicable law, whether a specific sales tax return for a specific tax period is due or not? Continuation of this practice shall create harassment among the compliant taxpayers and would also cause unnecessary futile litigation.
It is trite law that Automated System cannot differentiate between the certain statutory obligations under the law, either to submit Sales Tax returns monthly or quarterly but the concerned personnel behind the scene can modify the software/system to discriminate the registered taxpayers with their respective status under the Sales Tax Act, 1990. This untoward situation can be avoided solely to update the FBR electronic system, which is apparently incorrigible. Keeping in view the technical and legal problems in the system, it is evident that there is no foolproof mechanism to separate monthly non-filers from quarterly non-filers, Waheed Butt added.
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