Mills audit to bring entire sugar chain into tax net

The audit of sugar mills will help broaden the tax base, bringing the entire sugar chain, including dealers and distributors into the tax net.
Sources told Business Recorder on Sunday that the special audit teams have started reconciliation of the sugar mills data to check any suppression of procurement of sugarcane, consumption of chemicals/polypropylene bags and under-valuation of molasses, mud and bagasse.
In this connection, the Large Taxpayer Units at Karachi, Lahore and Islamabad have submitted the lists of units falling within their respective jurisdiction for audit purposes.
Sources said that the auditors would also scrutinise sales tax returns filed by the sugar mills. The income tax returns and financial statements will be reconciled with the record. The purchases made by the mills would also be tallied with the bank statements, purchase invoices and inventory record, etc.
They would also verify whether the sugar mills had made payments under section 73 of the Sales Tax Act, 1990. Under the provision, payment of the amount for a transaction exceeding Rs 50,000 shall be made through banking instrument showing transfer of the amount of the sales tax invoice in favour of the supplier from the business bank account of the buyer.
The audit would verify the physical stock taking of finished goods and reconciliation with the production, stocks and supply. The auditors would also physically verify the stocks of polypropylene bags at the mills and reconcile the data with the purchase, production and stocks of the sugar mills.
The sugar mills had assured the board that audit teams would be given full access to their tax records during the audit exercise for ascertaining reasons of decline in sales tax collection from this potential sector.
The board had conveyed to the association that the letters for verification of tax records would shortly be issued to all sugar mills. It is not an investigative or detective audit, rather an exercise to check the sales tax data of 2007, 2006 and 2005 and comparison of July-December (2007-08) record with the corresponding period of last fiscal.
Sources said that the FBR would also check the books of accounts and other relevant data available with the sugar mills. The main purpose of the audit is to confirm the sales tax decline with the tax records of all the units in Pakistan.
The information like input/output ratio, sales tax adjustment, zero-rated supplies, sugarcane crushed, declared volume in tons, assessable price of sugar, total volume of sugar etc would be verified. The FBR would also verify this data with the information collected from the Ministry of Food and Agriculture and other government departments as well.