KARACHI: The Karachi Tax Bar Association (KTBA) has recently submitted a series of proposals to the Federal Board of Revenue (FBR) and the Ministry of Finance, aiming to address various taxpayer concerns and streamline the implementation of the sales tax law. The recommendations put forward by the KTBA covered a wide range of issues, including the lack of timelines for audits, delays in the deregistration process, unjustified extensions in show-cause cases, and the need for relief measures for charitable organizations.
One of the primary concerns highlighted by the KTBA is the absence of a specific timeline for completing sales tax audits. Currently, there is no maximum period defined for concluding tax audits initiated under Section 25 of the Sales Tax Act. To address this issue, the KTBA proposes implementing a maximum period of six months for completing tax audits. This amendment aims to reduce the stress faced by taxpayers during prolonged audit proceedings and provide a clearer timeline for resolution.
In addition to the lack of audit timelines, the KTBA identifies the absence of a definitive timeframe for the deregistration process as a significant issue. The current process can take an indefinite amount of time, causing uncertainty and hindering effective resource planning for taxpayers.
To alleviate this problem, the KTBA suggests completing deregistration process within three months. Furthermore, if the application for deregistration is not disposed of within the prescribed period, the KTBA proposes automatic deregistration. These recommendations aim to provide certainty and expedite the process for taxpayers.
The KTBA also emphasizes the need for transparency and accountability in extending time limits for show-cause cases issued under Section 11 of the Sales Tax Act. Currently, taxpayers are not provided with reasons for extending time limits, leading to a lack of awareness and potential abuse of power. To rectify this, the KTBA recommends that commissioners share the reasons for extending time limits with taxpayers. Additionally, taxpayers should be served with a copy of the notice requiring an extension, along with the approval or rejection of the extension. These measures aim to enhance transparency and empower taxpayers to challenge unjustified extensions.
Streamlining compliance requirements is another area of focus for the KTBA. They propose extending time limits in various compliance situations, including filing sales tax returns, issuing debit and credit notes, submitting refund claims, complying with payment proofs, and seeking condonation. The KTBA suggests extending the time limitations to 365 days, providing taxpayers greater flexibility and reducing the risk of non-compliance.
Recognizing the challenges faced by charitable and non-profit organizations, the KTBA proposes granting zero-rating on supplies to purely charitable organizations engaged in welfare activities. Currently, these organizations bear the burden of sales tax, impacting their ability to carry out charitable initiatives effectively. By providing zero-rating, the KTBA aims to support these organizations and ensure their resources are allocated more efficiently.
To address issues related to bad debts and written-off receivables, the KTBA recommends introducing provisions to reverse output tax. This proposal aligns with international practices and ensures a fair distribution of the sales tax burden. Currently, registered persons are paying sales tax on transactions where the tax amount is not recoverable, causing financial strain and contradicting the principles of the tax system.
Furthermore, the KTBA suggests amending the rules on goods destruction to facilitate day-to-day business activities and minimize unnecessary compliances. They propose expanding the scope of goods eligible for destruction and replacing the mandatory approval of the commissioner with an intimation system, with the option for the commissioner to delegate an officer for observation if desired. These changes aim to simplify the process for taxpayers and reduce litigation for the FBR.
In addition to the above proposals, the KTBA recommends removing the restriction on adjusting input sales tax over 90% of output tax, rationalizing restrictions on input sales tax, such as disallowance on construction expenses, and introducing the concept of adjusting sales tax refunds with income tax liability and vice versa.
Copyright Business Recorder, 2023
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