Bar proposals for sales tax

The following are budget proposals for 2004-2005 approved by the executive members of the Karachi Sales Tax Bar Association sent to Finance Minister Shaukat Aziz.
SALES TAX RATES:
Presently, various rates of sales tax are applicable to different classes of taxpayers. These rates are very high, which is not only hampering business activity but is also the main reason of tax evasion.
In order to broaden the base of sales tax, the lower rate of sales tax, as detailed below, may prompt business community to enter the sales tax regime.
Therefore, we suggest that in order to net in more tax payers and also to generate larger revenue, the rates of sales tax may be reduced as under:
i) For all importers, manufacturers (threshold above RS. 20 million) and wholesalers, sales tax on value of supply/import, excluding all duties and taxes may be fixed @ 7%.
For all other persons, including retailers, manufacturers, service providers and food suppliers, sales tax rate may be fixed @ 2% (without the adjustment of input tax).
FURTHER TAX U/S 3(1A) At present, importers, manufacturers and wholesalers are allowed to make sale to un-registered persons on payment of further tax @ of 3% without observing the conditions of section 73 of the Sales Tax Act 1990.
This practice is discouraging, honest taxpayers, promoting under-invoicing and is also the main source of fake/flying invoices business.
Therefore, to save the system of value addition and implementation of documentation system at all levels, further tax be abolished.
SALES TAX REFUND CLAIMS: Sales tax refunds are linked with export. It has become a dream now to get refund within the specified time. Rampant corruption is no longer a secret tale.
There are frequent complaints about the problems faced by exporters due to inordinate delay in payment of their Sales Tax Refund claims, even after the completion of all formalities.
As correctly observed by the present chairman of CBR, refunds are withheld by CBR for the purpose of window-dressing of their budgetary targets.
This causes financial problems to the businessmen and hamper export activities. Billions of rupees have already been misappropriated through fake and flying invoices.
On the other hand, government is spending a huge fund on administration of Refund Department in every city.
In the past, sales tax was refunded to the exporters in the form of rebate from the Customs on fixed rates according to the commodity exported.
It is, therefore, suggested that the old system be restored which will not only help eliminate fake invoices problem presently faced by the CBR but will also reduce its administrative cost.
SPECIFICATION OF GOODS ON WHICH INPUT TAX CANNOT BE CLAIMED SRO. 578 (1), 98: All purchases of a sales tax registered person are directly or in directly related to taxable activities; therefore making any restriction on input tax adjustment is against the purpose of value addition tax.
It is, therefore, suggested that the above SRO be with drawn in the new budget.
THE INPUT SALES TAX PAID BY REGISTERED PERSONS ON ELECTRICITY, TELEPHONE AND GAS BILLS: All utility expenses are related to business activities whether by a commercial importer or a manufacturer or a wholesaler.
Therefore it is suggested that input tax against these expenses be allowed to all registered persons as allowed by the income tax department.
REGISTRATION/DE-REGISTRATION:
REGISTRATION: At present importers, manufacturers (taxable turnover above RS. 2.5 million) wholesalers and retailers (taxable activities above twenty million) are required to be registered with the sales tax department.
To rationalise and boost revenue targets and to boost pace of industrial growth, it's suggested that the minimum threshold for registration of manufacturer be increased to 20 million rupees and taxpayers including retailers (irrespective of their turn over), manufacturers with taxable activity up to 20 millions, service providers and all food suppliers may be transferred as enrolled persons to pay the tax @ 2% as suggested above.
The minimum threshold for enrolment also be revised as 2.5 million applicable on retailers, manufacturers and all others, including service providers.
REGISTRATION DOCUMENTATION: Presently, the procedure for sales tax registration is very painful and some time illogical.
This attitude of the department is not only hampering the business activities of the country but also discouraging the business community to offer their units for registration/enrolment.
It is, therefore, suggested that separate department directly under the control of CBR, like the department presently issuing NTN certificate, may be asked to complete the task of registration on the same day of application with only two documents ie NTN Certificates and NIC card. All verification/investigation can be done later.
DE-REGISTRATION: Thousands of Applications for de-registration are still pending with in Sales Tax House Karachi, due to unnecessary requirement of documents.
It is, therefore, suggested that this task should also be handed over to a separate department directly under CBR and all applications be processed with in a time frame.
BLACKLISTING SECTION 21(4) Recently the Sales Tax Collectorate in Karachi blacklisted 518 registered persons, with out assigning any reason or providing any concrete evidence.
It is therefore suggested that all such orders be issued after the issuance of proper show cause notice and providing proper opportunity of hearing to the affected persons.
AUDIT: Notices are served in the name of investigative audit, desk audit etc to the taxpayers in respect of the same records, which had already been audited.
This is against the provision of Section 25(2) of Sales Tax Act 1990, which stipulates audit once in a year.
At present the department is still not issuing audit report for the Audit carried out by their staff.
It is, therefore, suggested that an "Audit Report" with complete detail duly signed by the concerned Assistant Collector should be issued within fifteen days to concerned Taxpayers.
The audit team consists of Three persons including S. auditor, Auditor and a Deputy Supt. or Inspector instead of two persons in the Past creating tension among the business community for the arrangement of proper sittings in their office for the audit staff. It is therefor proposed for the revival of old system.
For independent audit of enrolled persons, the CBR can utilise the services of Deputy Superintendent and Inspectors, the most experience persons among the audit staff.
RECORD KEEPING: For the purpose of audit, all registered taxpayers are required to keep certain records as prescribed by the Act and also described in audit parameters.
Through SRO No.168 (2) 2002, Income Tax Wing of CBR has also suggested certain record for the income tax assesses. It is therefore suggested that as for as possible common records may be suggested, for all category of person registered with both the Wings of CBR.
RECORDS SUGGESTED THROUGH AUDIT PARAMETERS ALSO NEED FURTHER CLARIFICATION AND SPECIMEN OF THE FOLLOWING DOCUMENTS: Stock register, raw material consumption certificate, analysis certificate, analysis card.
SALES TAX RATES: Presently, various rates of sales tax are applicable to different classes of sales taxpayers.
These rates are very high, which is not only hampering business activity but is also the main reason of tax evasion.
In order to broaden the base of sales tax, the lower rate of sales tax, as detailed below, may prompt business community to enter the sales tax regime.
Therefore, we suggest that in order to net in more tax payers and also to generate larger revenue, the rates of sales tax may be reduced as under:
For all importers, manufacturers (threshold above Rs 20 million) and wholesalers, sales tax on value of supply/import, excluding all duties and taxes may be fixed @ 7%.
For all other persons including retailers, manufacturers, service providers and food suppliers, sales tax rate may be fixed @ 2% (without the adjustment of input tax).
SEARCH WITHOUT WARRANT U/S 40-A: The provisions of Section 40-A give an unrestricted authority to Assistant Collector of Sales Tax to proceed in cases of emergency without making resort to the provisions of the section 40.
These officers are not ready to under go even the formality of writing a statement or respecting the constitutional rights and guarantees respecting persons and property.
Therefore, Section 40A of the Sales Tax Act be deleted in the new budget.
ADJUDICATION PROCESS: Large number of cases is still pending with the adjudicating authority.
Further, majority of the taxpayers are not even satisfied by the decisions from the Sales Tax adjudicating authority.
It has been reported by our members that adjudication authority while passing orders are ignoring superior court directions resulting in harassment of taxpayers.
In order to lesson the burden on higher appellate forums and also to make the decisions transparent and unbiased at the adjudication level, we suggest that:
i) A proper cell should be established for the implementation of decisions of the higher courts and in case of failure proper punishment should be proposed through new budget.
ii) Induction of a member appointed by the Federal Tax Ombudsman, to be present at the time of process of the cases
iii) Proper staffing of adjudication having related Knowledge of the subject to handle such cases with in the time limits provided by the Law.
SECTION-57(CORRECTION CLERICAL ERRORS, ETC) Because of the language used in Section 57 of the Sales Tax Act, a very narrow interpretation is given by the department and mistakes to be corrected are confined only to arithmetical errors.
The result is that genuine mistakes of facts and law occurring in orders, adjudications or assessments are not corrected.
The taxpayers suffer and even for the rectification of such mistakes they have to file appeals, which involve lengthy procedures as well as expenses. It is, therefore, proposed that either circular/instruction may be issued to the officers to take a broader view of things or a new provision analogous to the provisions of section 221 of the Income Tax Ordinance 2001 may be inserted in the Sales Tax Act.
This will greatly facilitate the taxpayers and would relieve them of unnecessary hardships.
SALES TAX REFUND UNDER SECTION 66: A registered person has to apply through separate application for refund of those invoices input of which could not be claimed in the immediate three preceding tax periods.
Most of the refund claim filed under 66 are still pending with the department. There is no reason/clarification/that why this system is adopted which is not only wasting precious time of business community and their staff but also government fund spent on staff of the sale tax department dealing with refund claims filed under section 66.
It is, therefore, suggested that proper amendment may be introduced in the act so that a tax payer can adjust the input tax at his own under section 7 of the sales Tax Act, 1990 within the time frame of 3 years as observed by the Supreme Court of Pakistan.
SECTION-73: Application of new provision of section 73 of Sales Tax Act was suspended time and again and is now in suspension up to 30th June, 2004.
This section is also not in line with Income tax Ordinance where an exporter can pay in cash without any limit against purchases of raw material meant for production of export goods and time limit for the payment is within three years.
It is therefore suggested that the draft of new provisos may be circulated for the information of stakeholder immediately for their review and comments.
MISCELLANEOUS:
PUNISHMENT FOR WRONG CALCULATION: In a number of cases as reported by our members no proper care is taken by the department concerned in calculation of sales tax liability and additional tax.
It is, therefore, suggested that CBR must take proper action against such officers responsible for wrong calculation, if proved.
IMPLEMENTATION OF FTO DIRECTIONS: The FTO has directed certain action for future improvement in the working of the Sales Tax Department Our members have noted the dept has still failed to implement direction of the FTO.
It is, therefore, suggested that a cell should be established for the implementation of all FTO directions in their true spirit.