Pakistan Chemical & Dyes Merchant's Association has approached the Federal Board of Revenue to abolish certain harsh parameters which help in declaring a taxpayer "risky" in case of non-compliance from January 2010.
In a communication to the FBR Chairman here on Tuesday, the association suggested that the FBR should take some precautionary measures before declaring someone "risky". It has requested for revision in parameters for declaring any registered taxpayer "risky".
Firstly, a 21-day notice should be send to taxpayer by courier/postal authorities through e-mail, giving them opportunity to give reply to objections and update their record. Secondly, the trade bodies should be provided names, contact details and sales tax registration numbers (STRNs) of such person enabling the trade bodies to take up the issue with their members in such list to remove those objections.
Thirdly, the case should be heard by officer not below the rank or Additional Collector to remove chances of harassment in such cases. About the condition of filing sales tax returns for the last six months, the association commented that the condition should be retained as 4 out of 6 returns as sometimes there may be an error or delay due to reasons beyond control.
The association observed that the condition of showing sales/purchase ratio is illogical and impossible to comply on regular basis, as business environment and sales are beyond one's control. It is illogical to assume that businesses can be carried out by carrying zero stocks and that all times goods can be sold immediately upon receipt. Thus this parameter should be withdrawn.
About incomplete returns, it said that the parameter is contrary to the spirit of existing income tax and sales tax laws as in those laws late returns are accepted and does not form basis for stopping taxpayer from doing business. For any bona fide mistake or incomplete returns taxpayer is given opportunity to furnish the required information. Thus this parameter should be withdrawn.
In case of short payment of returns, the association said that currently due to e-filing, payment challan is generated by the FBR system and thus it is impossible to file returns without making the required payment. Hence, this parameter should also be withdrawn.
Another parameter is that purchase/sales have been made from any other 'Risky' person including blacklisted, non-filer, nil/null filer, or showing 'no' purchase from sales to the taxpayer. This parameter has two separate parts.
The first pertaining to Sales made should be withdrawn completely as there is no tax risk involved as the seller is discharging complete tax liability and in fact the government may be getting additional revenue through that sale Secondly, it is impossible to check the status of each and every person to whom sales are made.
The taxpayer's job should be to generate maximum business activity, which would lead to growth of economy, increased revenue, job generation and increased prosperity of nation. This FBR proposal shall stop the business activity causing irreparable loss to economy, hence should be withdrawn.
The second part pertaining to such purchases should also be withdrawn, as it is practically impossible to check status of each and every supplier prior to every purchase. Thus it should not form basis for declaring a person as risky. Rather, the input claimed from such purchases, made after the seller being declared 'Risky' may not be allowed until the discrepancy is removed.
Another parameter is that the output-input ration is higher by 10% from average of the industry/ category of persons/ sector: This condition is absurd as it penalises a person showing higher value addition and for paying more in taxes. Thus it should be withdrawn.
Commenting on the parameter that input is consecutively higher than output without any export, it said that the factor is already controlled by condition in ST returns allowing adjustment of inputs only up to the extent of 90 percent of output tax.
Thus even if a person is consecutively declaring input higher than output he has to pay tax on value addition with the returns and the unadjusted amount carried forward is refunded after year end only after their audit is conducted. The exceptions to this rule are commercial importers, who pay value addition in advance at import stage and sectors, which pay tax on inputs at a higher rate eg, 20 percent, paying value addition in advance.
Thus there is no need for this additional condition, which should be withdrawn. Another parameter to declare 'risky' is that the premises have been changed without amendment in registration, notices retained by courier/postal authorities, telephones/fax/address ie wrong.
The association added that prior to including this parameter Sales Tax and Income Tax records should be updated. It has been noticed in numerous cases that despite address and other particulars being changed by the Central Registration Office, many sales tax departments are still using the old address. Also the procedure for change of particulars is difficult and lengthy Thus until the FBR database is 100 percent correct at all stations this parameter should not be used.