Enforcement of audit strategy in non-compliant sectors urged

Directorate General of Intelligence has unearthed that the suspension of sales tax audit in past has resulted in massive non-compliance by potential sectors particularly hotels and restaurants in all major cities across the country.
Sources told Business Recorder on Monday that the DG intelligence has expressed its concern over the suspension of sales tax audit during the last collectors of sales tax conference. The agency pointed out that compliance has been dropped due to suspension of audit.
Particularly, the DG intelligence has pointed out that there is a need for enforcement of audit strategy in generally non-compliant sectors like hotels and restaurants. There is also a need for effective post refund audit of taxpayers to detect fraudulent refund claims, DG intelligence added.
When contacted, tax experts said that the DG intelligence has referred to the sales tax audit, which was suspended in last few years. The non-compliant sectors like hotels and restaurants do not have the documented inputs. These units also avoid maintaining record of their documented purchases. Secondly, the electricity and gas consumption by the hotels would help in ascertaining their actual turnover etc.
However, it has been observed that the hotels and restaurants distribute their work to contractors. It is difficult to ascertain their actual turnover on daily basis. If all the expenditure made by hotels are documented in their own name, it would be comparatively easy to check turnover etc.
They said that the FBR is legally empowered to give permission to the sales tax officials to exercise section 40-B of the Sales Tax Act, 1990 deputing sales tax officials at the manufacturing premises of units and hotels etc. However, the board has yet not allowed the collectors to exercise powers under section 40-B of the Sales Tax Act.
The department is very cautious in exercising section 40-B and does not permit collectors to use these powers until it is extremely necessary for detection of tax evasion. It has been a common perception that most of the hotels are not paying due amount of sales tax for which the department has to take certain measures to make the collection process of this levy more effective.
The section 40-B was introduced in budget 2003-2004 to depute tax officials at the manufacturing units to effectively check tax evasion. They added that so far tax officials have not been deputed at hotels to monitor their daily sales etc.
Experts were of the view that hotels engaged in providing taxable services have to pay sales tax of the service charges and file sales tax return. Hotel, if providing or rendering taxable services to its clients or members shall charge, collect and pay sales tax. However, in case of a restaurant providing food, beverages and other eatable items only and not providing taxable services, it could be treated as "manufacturer".