On July 22, 2019 the FBR issued Circular No. 1/2-STB/2019 which was supposed to clarify the provision in the finance act regarding collection of CNIC from consumers on specific transactions. Sadly, as with most things the FBR is prone to put out, this circular raises more questions than it answers. A point by point commentary is presented below to highlight the possible misuse and potential for harassment by FBR that this law may cause.
Para 1 section b and c and Para 3
1(b) This clearly means that this provision is only applicable if purchases are made from a 'Sales Tax Registered Person' (underlining is by FBR);
1(c) At present there are only 41,484 sales tax registered persons who are actually paying some tax with their returns;
Para 3 - In Pakistan, under present regime and also under proposed regime for retailers, ordinary small and medium sized retailers fall outside the 'Sales Tax Regime' therefore sale by such persons is not affected by this provision in any manner.
The above is a clear discrimination between sales tax payers and non-taxpayers and gives the advantage to non-taxpayers. Effectively, it says that a non-taxpayer can sell anything he likes (above Rs. 50,000) to anyone he likes without any condition, while a taxpayer is bound to ask for CNIC. It is quite obvious that any consumer who wishes to remain anonymous will transfer his business to such non-registered sellers and this will result in reduced revenue for the government.
The admission that there are only 41,000 persons paying sales tax is a black mark on the administration. Instead of going after the millions who are brazenly conducting undocumented business the FBR is choosing to go after a mere 41,000 who are actually paying taxes. This is as sorry a state of affairs as far as one can tell.
Para 1 section e
The law further provides this condition will not apply if the value of purchases is below Rs.50,000 in case sale is being made to an 'Ordinary Consumer'. The term 'Ordinary Consumer' is well defined. It means purchases for own non-business use by the end consumer.
This encourages the trade to creatively keep sales below Rs. 50,000 for those customers who don't want to reveal their CNIC details. Can the consumer purchase goods worth 99,000 on two invoices of 49,500 in one day and not have to give his CNIC? Is it one sale or aggregate sales? If it is the latter, then who is going to keep track of his purchases, if he comes in one day and buys something for 40,000 and then comes in the next day and buys something for 45,000? A clear incentive for creative ways to break sales up is being created by this circular.
Para 2
In order to further safeguard businesses operating in a reasonable manner the law specifically provides that "if it is subsequently proved that CNIC provided by the purchaser was not correct, liability of loss or penalty shall not arise against the seller in case of sale made in good faith." (underlining by FBR).
Effectively this paragraph is saying to tax paying sellers that "if you provide fake CNIC's, we won't say anything." What do the terms "reasonable manner" and "good faith" really mean to the FBR? If Person A walks into a shop, makes a purchase and presents the CNIC of Person B saying that it is his brother, is the seller supposed to accept it in good faith? And what if he suspects that the CNIC is not the brother's? Does he tell the buyer to get lost and lose a sale? The FBR can challenge each and every CNIC even the genuine ones, because "good faith" cannot be really proven after the fact. The icing on the cake in this regard is para 6 of the circular, which states that "FBR is fully conversant of the cultural constraints and traditions of the country. Therefore, in case of purchase ... being a 'female' the CNIC of the husband or the father will be considered valid..."
This is a joke! If a lady walks in and provides a CNIC of random male saying he is her father or husband, what good does that serve? Does the shopkeeper have to ask for her nikahnama or birth certificate to prove her antecedents! Simply put the trade is being made to go through all these hoops just because the FBR cannot catch tax evaders. Interestingly, with all these incorrect CNICs that are bound to be provided, they will still not be able to catch real tax evaders and will end up chasing fruitwallas and sabziwallas.
Para 4
This provision has inter alia been placed for 'business to business' transactions and few transactions in a value higher than Rs. 50,000 by limited number of end consumers and that too from sales tax registered person only, and also to avoid unverifiable, non-genuine, fake and fictitious business buyers...
What does "few transactions by limited number of end consumers." really mean? Are they saying that this law will not really catch many people? Then why such a fuss?It contradicts the very stance of the FBR and government that there is a huge amount of undocumented wealth in the country. If transactions above Rs. 50,000 are limited then why the need for this circular? And what sin has one committed by registering for paying sales tax that this condition is only applicable "that too from sales tax registered person only". One just has to count the number of smartphones, watches, jewellery, televisions, white goods etc available for sale in the country to understand that there are more undocumented goods than imported goods in the country and more potential sales tax paying retailers than those actually registered. The FBR's policy has always been to milk the registered person for more, rather than finding the tax evader. This process will continue in light of this circular.
Para 5
There is no intention to place any hurdle in business transaction or to use this provision for any harassment...
We all know that this is a totally baseless statement. This condition is a big hurdle for registered retailers (as shown above) and a big incentive for FBR to start harassing them on the pretext of "bad faith". Good faith has been defined as an "absence of intent to defraud" But if a shopkeeper accepts a card from a lady who says the CNIC belongs to her husband, and a few months later it transpires that the card belongs to a money laundering suspect, do we trust the FBR or other departments not to start harassing the shopkeeper?
This law is also a clear violation of rules of fair play. By creating a distinction between tax paying and non-tax paying sellers and giving a big advantage to the latter, the message is clear - do not get registered as a taxpayer and continue doing business under the table.
And finally, I will go so far as to say that this circular is downright dangerous to ordinary citizens. We are compelled to give out copies of our CNIC's in multiple places such as for mobile connections, bank account opening etc. In fact, CNIC numbers can be found online on the FBR website itself. Just download the Active Taxpayers List and you are privy to a million or so "NTN" numbers and names which are actually CNIC numbers with the name of the person.
So now, anyone wishing to make a purchase will pick a number from these sources, use the same name while making a purchase and the shopkeeper will accept it in "good faith". The problem is that when fake purchases against one CNIC number reach some threshold amount for the FBR, say one million, then the FBR may contact that person, who has no clue that his card number is being used fraudulently. And do we believe that the FBR will walk away with this person's explanation that his card was used fraudulently? I don't think so. And then what next? Will they have caught the real tax evader?
This injustice from FBR must stop. They must stop using the few registered taxpayers as pawns in their game to paper over their ineffectiveness in bringing real tax evaders to book and find a real solution to the problem.
(The views expressed in this article are not necessarily those of the newspaper)
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