Tax experts proposed Monday that the law/refund rules need to be appropriately amended to provide for refund with the filing of monthly sales tax return as the export data/evidence is readily available with the customs authorities.
Shahid Pervaiz Jami, a leading tax expert, said this automated processing of the refund claim either in full or up to 75% on the basis of return may be subjected to Post Refund Audit to ensure that the export proceeds have been realized. Similarly, in respect of sales tax on purchase of cotton lint the responsibility to pay the tax can be placed on the spinner as was the case previously so that the refund processing can be easily automated. He further pointed out that processing of refund is not linked to the timing of realization of export proceeds in other developed/ developing countries.
It may be noted that with the withdrawal of SRO 1125(I)/2011 the zero-rating of raw material and various reduced rates for finished goods are proposed to be replaced with standard sales tax rate of 17% and certain items to be included in the Eighth Schedule and to be taxed at reduced at 10% and 15% subject to certain contains.
According to the tax experts, the implementation of the proposal would lead to increase in refund amount of the manufacturer cum exporter which is not going to be processed under the existing Rules until and unless the export proceeds are realized. In this way, the capital / liquidity of the manufacturer cum exporter would be blocked in the refunds for a period around six months.
Jami has further stated that the charging of further tax and inadmissibility of the adjustment of input tax towards the further tax was a reasonable compensation for lack of documentation on sales to the unregistered person. The proposed amendment needs to be reconsidered and it is imperative that the same is made applicable from 1st January 2020 and in the meanwhile registration drive is carried on. Otherwise, the disallowed input tax would become direct cost and would be detrimental to the growth of the sector. Alternatively, the disallowance can be partial one and can be enhanced after each quarter.
Through amendment in section 8 and 23 of the Sales Tax Act, it is intended that where the registered person does not provide the CNIC number of the unregistered person, there the pro rata input tax would be inadmissible. This is in addition to the payment of further tax which is not adjustable towards the input on purchases.
Also, the zero-rating of input goods is proposed to be substituted with standard rate of 17% and with levy of 10% sales tax on cotton lint substantial amount would remain blocked in refunds. To reduce the refundable amount the reduced rate on input goods can be considered like 7.5% agreed prior to the presentation of the Finance Bill.
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