Accepting advances from customers is a normal and the most common feature of various types of business enterprises. This activity is also addressed in the Sales Tax Act, 1990 (the Act) under subsection 44 of section 2 of the Act read without provisos as follows:
ADVANCE PAYMENT RECEIPT:
==================================================================
Date:_____________ Serial No ________________
Sales Tax Registration No ____________________
M/s ___________(Sellers' Name) ________________
(___________Sellers' Address_____________________)
Tel:____
Fax:_____
Buyer's Name______________________________________________________
Address___________________________________________________________
__________________________________________________________________
& Sales Tax Registration No: _____________________________________
Or National Tax No: _____________________________________________
(in case of unregistered person)
S. No Description of Value of Amount of Value of
Taxable Supply Advance Sales Tax Advance
Excluding Received in Including
Sales Tax Advance Sales tax
Sales tax -
Total
Signature of authorised person
==================================================================
"Time of supply means a supply shall be deemed to have taken place at the earlier of the time of delivery of goods or the time when any payment is received by the supplier in respect of that supply:"
In the light of the above, a mere receipt of payment from customer without delivery of taxable goods is treated as a supply in the Act. Besides, section 23 of the Act directs every registered person making a taxable supply to issue a serially numbered sales tax invoice at the time of supply of goods containing the particulars prescribed by the section, particularly the description and quantity of goods.
Therefore, the foregoing provision of the sales tax law suggests a registered person to issue a sales tax invoice at the time of receiving advances from customers even if it is part payment.
However, when it comes to practical application of section 23, the taxpayer apprehends disallowance of input on tax invoice for advances rather on receipt of delivery of goods due to certain difficulties which are enumerated below:
-- Determination of description and quantity of goods at the time of receiving advances particularly in the case of a business enterprise dealing in more than one commodity or business eg confectionery and food items.
-- Demand of buyers for issuance of sales tax invoice when the delivery or full payment is made.
-- Issuance of credit notes to customers under section 9 of the Act resulting in advances.
-- Post transaction discounts ie artificial creation of advances when a seller provides discount schemes other than those mentioned on the face of sales tax invoices to wholesalers, distributors and retailers on achievement of periodic sales targets to motivate good performance and boost sales.
The sales tax on this sort of advance is borne by the registered person himself However, sales tax on this amount is paid in entirety at the time of issuance of sales tax invoice, thus giving rise to the concept of double taxation.
The Central Board of Revenue (CBR) vide SRO No 522(1)/2005 dated June 6, 2005 has introduced a new chapter No XV in Sales Tax Special Procedures Rules 2005 named "Special Procedure for issuance of tax invoices against advance payment receipt" to streamline the process of sales tax documentation and suggested every registered person that he may (not shall as mentioned in subsection 1 of section 23) issue a serially numbered "Advance Payment Receipt" in the prescribed format at the time of receiving advances from customers and when delivery is made issue a sales tax invoice (providing reference number of the advance receipt issued earlier and giving details of balance amount left).
However, these rules framed by the CBR do not address the problems facing the business community in handling advance received from customers. In this regard CBR is required to make further clarifications and amendments to facilitate the business community and removal of difficulties for smooth application of the sales tax law.
POSSIBLE SOLUTION: According to my understanding of the subject matter the following actions may help the CBR to remove difficulties confronting the registered persons with respect to technicalities of advances received from customers:
Firstly, the CBR should devise special format of sales tax invoice as per the powers conferred by first proviso to subsection 1 of section 23 of the Act or make the following amendments to the columns of advance payment receipt prescribed by rule 110 of chapter XV of Sales Tax Special Procedure Rules 2005 to overcome the difficulty of determining description and quantity of goods to be supplied against advances:
As elaborated above, the columns relating to description and quantity of goods and the total sale value of goods have been omitted to simplify the procedure of issuance of advance payment receipt for taxpayers in the case of advances received from customers where it is difficult to determine the description and quantity of goods before actual delivery of goods.
Secondly, the CBR should issue clarification regarding post transaction discounts allowed to the supply chain on achievement of sale targets or to boost sales. CBR should acknowledge this sort of discount and allow sales tax adjustment through mechanism of debit and credit notes under section 9 of the Act and Sales Tax Rules 2005 Chapter III. In this way double taxation will be avoided.
Thirdly, CBR should instruct the registered persons to keep separate records for advances from customers shown at the end of tax period distinguishing between advances actually received in cash and advances arisen due to issuance of credit notes between credit balance arisen in the customers' ledger due to advancing target or periodic discounts to the supply chain after the supply is made in order to avoid double taxation on the latter one because the former advances are normally dealt as per section 9 and the rules thereon.
Lastly, an appropriate resolution to these problems may be achieved by mutual agreement between CBR and the Taxpayers' association namely the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) or city-wise chambers of commerce and industry or Industry wise associations etc. However, to break the ice any forum has to put this issue before the CBR for mutually accorded solution and to safeguard the interests of both the CBR and taxpayers.
Comments
Comments are closed.