A proposal to bring so-called retailers within the category of manufacturers where they have been engaged in manufacturing/selling activity with annual turnover of above Rs 5 million, was discussed in the Director Generals conference of Federal Board of Revenue (FBR).
Sources told Business Recorder here on Sunday that the DG conference chaired by FBR Chairman Sohail Ahmed discussed threadbare various proposals to bring retailers into the tax net. Tax officials brought into the notice of tax authorities that the ''cottage industry'' is exempted from sales tax in case annual turnover is below Rs 5 million. However, certain category of taxpayers like bakeries has been engaged in both the manufacturing and supplies activities. These units having annual turnover above Rs 5 million have declared themselves as retailers to evade tax.
Explaining the definition of cottage industry, sources referred to sales law that the "cottage industry" means a manufacturer, whose annual turnover from taxable supplies made in any tax period during the last 12 months does not exceed Rs 5 million or whose annual utility ie electricity, gas and telephone bills during the last 12 months ending any tax period do not exceed seven hundred thousand rupees.
Contrary to this, some of the retailers have been engaged in manufacturing as well as supplies but declared themselves as retailers despite annual turnover of above Rs 5 million. In the same manner, such kind of manufactures-cum-suppliers have also tried to cover under the definition of "cottage industry" to avoid registration with the sales tax department.
Sources said that all kinds of units having utility consumption above Rs 700,000 have been registered with the sales tax department. The units, who had deliberately declared themselves as "cottage industry", but have annual utility consumption of above Rs 700,000, have to be registered.
Sources said that the "Principal Business Activity" of companies would be the activity where the unit is earning more income. For example, if a unit has been engaged in multiple business activities and earning more revenue as manufacturer, this manufacturing activity would be considered as "Principal Business Activity" for registration purposes.
In case of registration as manufacturer, the person would be bound to monthly file sales tax return as compared to quarterly return in case of retailer. The FBR has taken notice of the situation and directed the field formations to check data of all kinds of retailers, who are operating under the garb of "cottage industry", sources said. These manufacturers-cum-suppliers have to be registered within the category of manufacturers for proper documentation and payment of taxes.