0.5 percent tax under Section 153-A: Distributors, wholesalers seek justification for collection

The registered distributors and wholesalers, who are maintaining proper particulars/books of accounts have asked the Federal Board of Revenue to give justification for collection of additional amount of 0.5 percent tax under section 153-A of the Income Tax Ordinance 2001 from the documented persons.
Tax experts told Business Recorder here on Tuesday that a question arises if the distributor/wholesaler who have proper particulars and registered within income tax or sales tax regime as a documented segment, why they should pay additional amount of 0.5 percent tax.
The levy of tax was meant only to penalize undocumented segment of trade, unfortunately government while introducing replacement law forgot to exclude registered segment of trade and therefore they are burdened with additional amount of tax without any justification, the FBR needs to revisit the law on this aspect as well.
In cases of persons having multiple activities as wholesaler, importer, exporter, how a manufacturer would determine application of tax? There are no business categories of wholesaler, importer, exporter, manufacturer on NTN, how should manufacturer would determine the category and justify application or exclusion of tax? They added.
Background of the issue revealed that the Board had withdrawn requirement for furnishing of CNIC/NTN of sales made to unregistered persons. In this regard, the FBR has issued two new notifications 879(I)/2012 and 880(I)/2012 both dated 17th July 2012, which rescinded notifications 821 and 191 pertaining to condition to provide particulars of unregistered trade.
While the said conditions were eliminated from Sales Tax Act, the FBR has already induced counter requirement under Income Tax Ordinance by way of inserting new section 153-A in the Finance Bill 2012-2013. The section 153-A requires all manufacturers to collect 0.5% income tax from sales made to their distributor and wholesaler. The modalities and concept of 153-A are yet not clarified by the Board. Therefore the bare reading of section 153-A arises different interpretations on its practical application like time of payment for tax levied under section 153-A; scope of tax on different classes of persons; generating challans in case of persons without having required particulars and justification for scope of tax considering replacement of sales tax law with income tax law.
It was not yet officially clarified by the board that, whether the tax u/s 153-A is required to be paid at the time of sales or at the time of payment received from the customers? The bare reading of the law implies that 0.5% tax is required to be collected by the Manufacturers on sales to their distributors and wholesalers. The word collection under the law gives the impression that tax is payable after collection, whereas at the same time word sales gives an impression for payment of tax at the time of sales. The time and manner therefore requires to be clarified by the board to avoid any ambiguity, experts said.
The bare reading of the law simply requires all manufacturers to collect tax from their distributors, dealers and wholesalers, the question arises whether the condition to collect tax restrict to the extent of buyers registered as wholesaler/dealer/distributor or it was extended to other segments, for instance the goods supplied by manufacturer to another person who used the goods as raw material for further manufacturing activity would be required to pay tax or not? The persons registered as importer/exporter does not requires to pay tax, the plain reading of the law suggest, it requires confirmation from the board.
In cases of persons having multiple activities as wholesaler, importer, exporter, how a manufacturer would determine application of tax? There are no business categories of wholesaler, importer, exporter, manufacturer on NTN, how manufacturer would determine the category and justify application or exclusion of tax?
The provision of tax was introduced to burden undocumented segment of the trade. The challan of income tax payment is only generated upon furnishing NTN or CNIC, how should a manufacturer made payment of tax in cases of non availability of such particulars of their unregistered customers? There is a need to introduce a Free Tax Number (FTN) in all such cases where no particulars of buyers are available to generate the tax challan and recovery of tax in government kitty, they said.
The tax u/s 153-A was introduced in place of sales tax notifications 821 and 191 pertaining to requirement of CNIC/NTN of sales to un-registered trade. The business community did not found the conditions practicable and upon their agitation the law was replaced with the concept to pay some amount of tax in case of non furnishing of particulars to their customers, accordingly section 153-A was introduced in Finance Bill 2012-13.