Controversial sales tax law may be retained in budget

The Central Board of Revenue (CBR) is likely to retain the controversial sales tax law - Missing Traders Fraud - in the budget 2007-2008 under which all partners in the supply chain would be jointly liable to deposit the unpaid amount of tax at any stage of supply.
Sources told Business Recorder on Monday that the board has yet not invoked the provisions of 'Missing Traders Fraud' since its promulgation in the budget of 2006-2007. The law was not suspended and no case framed against the taxpayers.
Business community has strongly criticised the law, which restrained the CBR to enforce it at the level of Collectorate of Sales Tax and Federal Excise. Under the Missing Traders Fraud, both the buyer and the seller would be liable to deposit the due tax amount.
Prior to this amendment, the buyer was not held responsible even if his supplier had not deposited the tax already recovered. The law is in vogue in European countries to punish the persons involved in obtaining fraudulent refund on fake invoices of blacklisted units. Even European Supreme Court has upheld the law in favour of the tax authorities.
Sources said that the volume of refund has decreased due to zero-rating of five sectors, but the law would remain effective as a deterrent during next fiscal. The board had introduced several strict provisions in the Sales Tax Act, 1990 to reject the fraudulent refund claims where the amount has not been actually deposited by the supplier in the national exchequer.
Section 8 of the Sales Tax Act was amended to disallow refund or 'input tax adjustment' in case the claimed tax has not been deposited by the respective supplier. Similarly, the board has introduced a system for checking refunds claimed by persons, whose suppliers have collected tax from them, but not deposited in the treasury.
Sources said that the board has not issued the Standard Operating Procedure (SOP) for implementing the law. In this regard, some proposals are under consideration for making this law practicable and acceptable to the chambers and federations.
They said though the new law is in place, it cannot be implemented till the finalisation of the SOP on the basis of trader's recommendations. All issues pertaining to the practical difficulties being faced by the taxpayers would be taken into account prior to issuance of the procedure.