KCCI opposes sales tax on crude oil import

The Karachi Chamber of Commerce and Industry (KCCI) has proposed that no sales tax (ST) be charged on crud oil import. In its budget proposals for the year 2007-08, the chamber further suggested that Pakistan Refinery Limited (PRL) be allowed to pay and recover sales tax at the time of their local supplies.
The chamber pointed out that sales tax levied on crude oil import, part of which eventually became refundable because of export of naphtha. The chamber pointed out that abrasive paper and abrasive cloth are subject to 15 percent sales tax and 6 percent income tax. Although they are essentially used for finishing by five zero rated sales tax industries which are subject to withholding tax at the rate of one percent.
The chamber noted that due to high impact of taxes and duty these items are smuggled on mass scale. The KCCI proposed that abrasive paper and abrasive cloth be also included in SRO 525(1)/2006 and 638(1)/2005 for levy of zero percent sales tax and one percent withholding tax respectively.
`The chamber pointed out that a registered person (RP) cannot reclaim or deduct input tax on goods in respect of which ST has not been deposited by the respective supplier.
This creates hardships for the purchaser and blockade of funds. It is the responsibility of the supplier to ensure that the amount is deposited on a timely basis as it is practically not possible for the purchaser to ensure that the amount has been deposited by the supplier.
The chamber suggested that section 8(1)(ca) be abolished. A registered person receiving a taxable supply from another registered person in the knowledge that tax payable in respect of any supply would go unpaid such registered person as well as person making taxable supply shall be jointly and severally liable for payment of such unpaid amount of tax, the chamber pointed out. The KCCI pleaded that payment of due sales tax is the responsibility of suppliers and to ensure this, tax officials are there. It should not be the purchaser's responsibility to play the role of tax officials and ensure that other person (seller), on whom he has no legal control, pays the tax.
The chamber proposed that it is harsh provision particularly for buyers and be waived. The chamber mentioned that hotel services are subject to sales tax under provisional sales tax ordinance whereas it has been withdrawn from services rendered by beauty parlors, slimming clinics, laundries and marriage halls. Due to this tax hotel services are not competitive as compared to same services provided by others. It is proposed that sales tax on hotel services be also withdrawn to provide level playing field.