The absence of an authentic sales tax database has restricted the Federal Board of Revenue from invoking provisions of a controversial sales tax law, "Missing Traders Fraud" under which all partners in the supply chain are liable to deposit amount of tax not paid at any stage of supply.
Sources told Business Recorder on Friday that the law was introduced in budget 2006-2007 but its implementation was suspended for the last two years due to severe criticism from the business community. In Pakistan, there is no authentic database on buyers and sellers within a supply chain for sales tax verification. Without this database, it is difficult to frame cases against the entire supply chain across the country.
Under the law, the board had introduced several strict provisions in the Sales Tax Act, 1990 to reject the fraudulent refund claims where the amount has not been actually deposited by the supplier. Section 8 of the Sales Tax Act was amended to disallow refund or 'input tax adjustment' in case the claimed tax has not been deposited by the respective supplier. In last budget, board was empowered through Finance Act, 2007 to exempt any transaction from the provisions of "Missing Trading Fraud" under which all partners in the supply chain would be jointly liable to deposit the unpaid amount of tax at any stage of supply.
Sources said that despite passage of over two years, this law was not enforced in the field formations. Similarly, the board has also not exempted any specific sector from the provisions of this law.
Business community has strongly criticised this law, which restrained the FBR to enforce it at the level of collectorates. Sources said that both the buyer and the seller would be held responsible for depositing the amount of due tax if not deposited. Prior to this amendment, the buyer was not held responsible even if his supplier had not deposited the tax recovered from him. The Pakistani tax authorities had copied this law from section 77A of the UK Value Added Tax Act, 1994.