FBR to audit three percent ST deductions on supplies to government departments

The government has decided to conduct audit of 3 percent sales tax being deducted on supplies made to the government departments/ autonomous bodies. This decision has been taken because of poor collection from this levy.
Sources told Business Recorder on Monday that the issue focused on sales tax like withheld in terms of SRO. 660(I)/2007 where audit would be done systematically as per instructions of the Federal Board of Revenue (FBR).
According to sources, the FBR has repeatedly issued instructions to the field formations to remain in touch with the government departments and obtain lists of their suppliers. The purpose of the whole exercise is to check whether the amount of sales tax deducted has been dully deposited in the national kitty.
The audit of tax deductions under SRO.660(I)/2007 would check whether the credit of the deducted amount has been claimed. Secondly audit would also verify that the amount deducted has been dully deposited in the national exchequer. It has to be confirmed that the government department, being withholding agent, has deducted and subsequently deposited the amount in the kitty.
The Board had declared government departments as withholding agents for deducting 3 percent of the total 15 percent payable sales tax for supplies made to these departments. It was an enforcement measure for compliance by both the withholding agents and suppliers to the government departments. Out of total 15 percent sales tax payable by the suppliers, government will withhold 3 percent and the balance amount of 12 percent would be returned to the suppliers for depositing in the national kitty.
Sources said that the different government departments are engaged in procurement. These include federal and provincial government departments, semi-government and autonomous bodies. They purchase different items from the registered suppliers, who collect the bill after deduction of sales tax.
In most of the cases, the supplier did not deposit the due amount of tax in the national kitty. During 2007-08, the board tried its level best to implement Sales Tax Special Procedure Rules by issuing an error-free procedure for deduction of three-percent sales tax on government supplies. The board had repeatedly amended the rules and convinced the stakeholders for proper collection of the levy. However, the FBR could not get any substantial amount from the deduction during last fiscal year.
It seemed that the same trend has been continued during 2008-09 for which audit has been ordered by the tax authorities, sources said. It is important to mention that the board had issued simplified procedure of 'book adjustment' for the AGPR to transfer deducted amount of sales tax under the 'sales tax head of account' on supplies made to the government departments.