Deduction of excess tax under Section 8B of the Sales Tax Act 1990 by the Federal Board of Revenue (FBR) is putting large manufacturing units into severe liquidity crunch; it is learnt on Wednesday. According to sources, 10 percent minimum value addition sales tax was applicable to certain registered persons including manufacturers. Therefore, manufacturers are duly maintaining tax compliance of minimum 10 percent value addition.
However, after the amendment to Withholding Sales Tax Rules & Procedure, through notification number 98(I)/2013 dated 14-02-2013, vide omitting sub rule 3(B) of Rule 2, the taxpayers, falling under Regional Tax Office (RTO), have also been assigned to withhold the sales tax on supplies of units registered in Large Taxpayers Unit (LTU) & RTO. Therefore, manufacturers'' taxable supplies of LTU & RTO units are being subjected to withholding sales tax.
Following the said amendment, the registered manufacturers are facing excess deduction of tax as their minimum tax liability under section is 10 percent value addition tax (VAT) whereas their supplies are subject to 20 percent withholding sales tax deduction, sources maintained. Moreover, sources said that manufacturers registered with RTO were mainly doing business with unregistered persons, or with AOP/ individual firms, ie, distributor wholesaler, etc, which were yet not withholding agent hence, manufacturing units, falling under RTO were not affected from excess withholding sales tax deduction.
Whereas, the LTU registered manufacturers are facing the worst, due to adverse impact of negative cash flow as they are maintaining their tax compliance under Section 8B, vide notification 647(I)/2007 whereas, deduction of withholding sales tax on their taxable supplies are 20 percent. Therefore, the excess unadjusted tax amount is being carried forward over the period as VAT is less than 20 percent, which creates liquidity crunch for the respective industry.
Sources further said that there was no sales tax refund procedure for the said deduction that resulted in piling up carry forward amounts every month in the sales tax return, creating liquidity problem for taxpayers. They urged the Federal Board of Revenue (FBR) to exempt taxable supplies of registered persons of LTU from withholding Sales Tax Special Procedure 2007, while restoring the sub rule 3 (b) of Rule 2, as withdrawn under the notification number 98(I)/2013 dated 14-02-2013.
Furthermore, they said the rate of withholding sales tax on taxable supplies of manufacturers should be reduced at the rate of 1/10th of the value of sales tax supplies as similar rate was being applied to wholesalers and distributors under the notification 897(I)/2013,dated 04-10-2013. Sources said taxpayers should be allowed to setoff their excess unadjusted withholding sales tax from their due tax liabilities and added that sales tax refund procedure should be prescribed for the purpose.
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