According to the latest sales tax rules the following persons engaged in making of taxable supplies in Pakistan (including zero- rated supplies) in the course or furtherance of any taxable activity carried on by them, if not already registered, are required to be registered in the manner specified in this chapter, namely:-
(a) A manufacturer whose annual turnover from taxable supplies, made in any tax period during the last twelve months exceeds five million rupees;
(b) A retailer whose value of supplies, in any period during the last twelve months exceeds five million rupees;
(c) An importer;
(d) A wholesaler (including dealer) and distributor;
(e) A person required, under any other Federal law or Provincial law, to be registered for the purpose of any duty or tax collected or paid as if it were a levy of sales tax to be collected under the Act;
(f) A commercial exporter who intends to obtain sales tax refund against his zero rated supplies.
Significant changes in registration rules highlighted by FBR on the website
ACCORDING TO FBR ANNOUNCEMENT AS APPEARING ON THE WEBSITE THE SIGNIFICANT CHANGES IN THE NEW REGISTRATION RULES ARE HIGHLIGHTED AS UNDER:
a) The prospective tax payers have been given the option to apply for registration directly to the Central Registration Office (CRO) at Federal Board of Revenue. This will ensure expeditious registration process by eliminating the step of filing application in the Local Registration Office (LRO) or the Collectorate.
b) Any prospective taxpayer can apply on a simple registration form STR-1 to local registration office.
c) The prospective taxpayers can also apply for registration on-line by visiting the appropriate link relating to e-filing on FBR's homepage and following the instructions provided there.
d) In addition to above it was further announced by the FBR that the previous requirements of furnishing supporting documents are no more applicable because the Central Registration Office having online access to database of NTN as well as to that of NADRA and shall verify the particulars declared in the application with database.
PROCEDURES FOR FILING OF AN APPLICATION FOR REGISTRATION
ACCORDING TO SALES TAX REGISTRATION RULES:
1. A person required to be registered under the Act shall, before making any taxable supplies, apply to the Central Registration Office (CRO), through electronic means as provided by the Board or otherwise, through owner, member or director, as the case may be. Such application shall be made in the form SIR-i, transmitted to the CRO electronically or through registered mail or courier service. Such application will specify the Collectorate in whose jurisdiction the registration is sought, as per criteria given below, namely:-
(a) in case of a corporate person, that is, a listed public limited company or an unlisted public limited company or a private limited company, the area where the registered office is located;
(b) in case of a person not incorporated, the area where the business is actually carried on; and
(c) in case of a person not incorporated, having a single manufacturing unit, whose business premises and manufacturing unit are located in different areas, shall apply for registration in the Collectorate of the area in whose jurisdiction his manufacturing unit is located:
provided further that a corporate person shall have the option to apply for transfer of registration to the Collectorate having jurisdiction where the place of business is located.
PERIOD PRESCRIBED BY THE SALES TAX RULES FOR ISSUANCE OF REGISTRATION CERTIFICATE:
On completion of such verification or inquiry, through LRO or otherwise, as the CRO deems necessary, it may register the applicant and issue a certificate of registration containing the registration number of the applicant in the form as set out in the form STR-5, or reject the application within fifteen days from the date complete application is received in the CRO, under intimation to the applicant, specifying the reasons for such rejection.
ACTUAL SITUATION:
THE ACTUAL POSITION FACED BY A TAX-PAYER DURING REGISTRATION IS VERY DIFFERENT AS PROVIDED IN THE RULES AND AS PUBLICIZED BY THE FBR:
1- E-Filing Of Registration Application Not Implemented So Far:
Under new registration rule issued vide SRO No 555(1)/2006 dated 05-06-2006 described under Rule 5 that now a tax payer can file registration application to the CRO through electronic means but till now after passing about two years no such facility is available and if you will try to file your registration application electronically you will receive a message as under:- (Sorry, there is no such web page matching your request. It/s possible you typed the address incorrectly, or that the page no longer exists.)
2- ACTUAL TIME TAKEN IN PROCESSING OF APPLICATION:
At present, in most of the cases the Central Registration Office is taking more than 2 1/2 months to release or reject application of registration, described as under
(i) When you apply manually to CRO at Islamabad, through TCS they take at least 15 days time to start initial process on your application and after 15 days you can see the status of your application on their website which is generally displayed as under:
("Your application is in process or sent to local registration office for verification purposes")
Therefore, 15 days time for issuance of Sales Tax Registration Certificate is not workable because it is a time when the FBR at Islamabad generally starts initial working on your application. It is due to the main reason that all the departments situated at CBR Islamabad are handling mail through old procedure instead of adopting new techniques to cut short the time spent in dispatch of document from one officer to another officer.
(ii) To start next process ie verification by the Local Collectorate, the application marked by the CRO generally reaches the local staff at least after 15 days due to the reasons as explained above.
(iii) The verification process normally takes one month time and depends how you follow up your application.
(iv) Now another hurdle is developed by the CRO resulting in 10 more days to reach the Certificate to tax-payer because now they are delivering Registration Certificate through LRO after calling the concerned registered person through a letter.
3- DOCUMENTS DEMANDED BY THE LOCAL REGISTRATION OFFICE NOT PROVIDED IN THE RULE:
During the verification process you have to provide the following documents to Local Registration Office for which they are not authorised by the Rules:-
(i) Copy of NIC of the proprietor in case of proprietorship and in case of AOP or company copies of all the partners and directors.
(ii) Copy of NTN No in case of proprietor and in case of others copies of all the directors and partners
(iii) Copy of the bank certificate regarding maintenance of bank accounts.
(iv) List of machinery in case of manufacturing unit.
(v) Copy of memorandum and article of association in case of company.
ACTUAL REASONS FOR SUCH DELAY:
(a) In the past various tax frauds involving billions of rupees were committed by the tax payers. Therefore, the CRO, Islamabad is now forwarding all applications of manufacturers, wholesalers, retailers and commercial importers for verification to Local Registration Office.
This procedure adopted by the CRO/LRO at his own not supported by registration rules are distressing all sorts of applicants.
There is reported tax fraud of billions of rupees in income tax department unearthed recently by the intelligence department but there is no such restriction in issuance of NTN certificate which is at present normally issued in 48 hours without any investigation and verification.
Thus, the delay in issuance of registration certificate is to punish honest tax payers whereas in fact the persons involved in fraudulent activities having means to obtain such certificate within no time while sitting in the drawing room.
(b) The second and most important reason in delay for issuance of such certificate that the FBR is trying to update tax payers by imposing modern means of filing of returns statement etc but failed to modernise their own offices and at present:-
(i) The CRO in Islamabad situated in the basement of the FBR building surrounded by dumped of broken furniture without proper telephone lines, fax machines, scanners and updated computers etc.
Require to improve their internal working as well as for obtaining reports from the local registration office.
(ii) The FBR has still not adopted the modern techniques and all the departments of this office are working manually, lack of training and lack of knowledge of modern technique and equipments is visible on all floors and even the Chairman office is not ready to deliver any thing to general tax payers within the prescribed time.
(iii) The Central Registration Office is headed by a Secretary who is a very nice and polite person and attends telephone calls of the tax payers without hesitation, but having no control on local registration office and in case of your query he only can provide the actual situation of your application if pending in his office.
IMPACT OF SUCH DELAY:
Due to delay in providing Registration Certificate within the time frame of 15 days as provided in the sales tax rule affecting:
(a) In case of import, the tax payer has to bear additional cost on its imports due to fluctuation in exchange rate.
(b) The tax payer has also incurred unnecessary expenses to maintain his office for no business activity.
(c) The tax payer has to bear unnecessary business cost as he has to spend his precious time and money to make follow ups on daily basis from these two registration offices and in most of the cases normally receives no response.
(d) The Country/CBR also suffers in the shape of sales tax, income tax and withholding sales tax due to delay in start of business activities.
WHAT IS THE SOLUTION?
1- Issuance, preparation of Sales Tax Registration Certificate is not the function of CBR. It is the responsibility of local Collectorate. Therefore, all activities related to sales tax registration may immediately be transferred to Local Registration Office like issuance of NTN Certificate which is issued from the local offices of the Income Tax Department.
2- Immediate activation of e-filing facilities of registration, de--registration and change in particulars of registration.
3- The local registration office must be well equipped having all sorts of modern facilities, ie enough telephone connections, printers, scanners and updated computers with a view to issue registration certificate within 48 hours after filing of application manually or e-filing.
4- The main hurdle in issuance of certificate is verification process which is carried by the local collectorates before issuance of registration certificate.
To cut the time short for issuance of certificate there will be no harm if the process of verification be started after issuance of the registration certificate which must be completed within 15 days time. In case of any suspicious activities the department has full power under the act of block activities of the tax payers who are found involved in any fraudulent activities.
Timely issuance of registration will not only save the precious time of the honest tax payers but will also help to improve tax collection which is the need of the time.
(The author is President Karachi Sales Tax Bar Association.)
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