The Federal Board of Revenue (FBR) has begun sales tax audit of all National Tax Numbers (NTNs) being withholding agents to confirm/verify withholdings and deposit one percent sales tax of the value of taxable goods purchased by them from relevant suppliers.
In this connection, the FBR here on Wednesday issued instructions to all Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) to check the withholding of sales tax by NTN holders, whether or not registered for sales tax purpose, but falling within the jurisdiction of Large Taxpayer Units (LTUs).
According to the FBR''s instructions to the LTUs/RTOs, the FBR has detected serious violations of the Sales Tax Special Procedure (Withholding) Rules 2007. A large number of NTN holders, despite having deducted income tax @ 3.5% of the gross value of supplies, did not deposit sales tax @ 1% of the value of taxable supplies, as required under the Sales Tax Special Procedure (Withholding) Rules 2007.
The FBR''s instructions to the field formations said that in accordance with clause (d) of sub-rule (2) of rule-1 of the Sales Tax Special Procedure (Withholding) Rules 2007, notified vide SRO 660(1)/2007 dated 30th June, 2007, all the taxpayers falling within the jurisdiction of LTU, whether or not registered for sales tax purpose, are declared withholding agents of sales tax. Under the provision of sub Rule (3B) of Rule (2), a taxpayer registered in a Large Taxpayers Unit (LTU) shall deduct withhold sales tax @ one percent of the value of taxable supplies received by him from a registered person, other than the one registered in LTU, and deposit the same in the Government Treasury under the Head of Account "B-02341 -Sales Tax".
The FBR said that the snap audit conducted by the Special Monitoring Team of FBR revealed that a large number of NTN holders, despite having deducted Income Tax @ 3.5% of the gross value of supplies, did not deposit sales tax @ 1% of the value of taxable supplies, as required under the aforesaid Rules. A synopsis indicating details of such NTN holders (not registered for sales tax purpose), for the tax period JuIy-2009 to March-2012 has been compiled by the special team of the FBR.
In this backdrop, it is requested that a Special Audit Team, headed by an officer of Inland Revenue Service, not below the rank of an Additional Commissioner, and comprising experienced/skilled IR Audit Officers may immediately be constituted and assigned the task of carrying out desk audit of all NTN holders, whether or not registered for sales tax purpose, to confirm/verify withholding and deposit of sales tax @ 1% of the value of taxable goods purchased by them from a supplier not registered in a Large Taxpayers'' Unit, during the aforesaid tax period, FBR maintained.
The FBR said that the Audit Team constituted as aforesaid may be advised to take into consideration the exclusions as provided under rule-5 of the aforesaid Rules while conducting desk audit. They may also be advised to undertake the exercise thoroughly, in a professional manner and without harassing the taxpayers.
The audit shall be completed and report be sent to the Board on or before May 25, 2012 positively, and in case of short/non payment of sales tax, immediate recovery action shall be initiated to ensure that such short/unpaid amount of sales tax is deposited in the government treasury during the current fiscal year 2011-12, the FBR instructions added.
The whole exercise of checking illegal input tax adjustments and sales tax deductions/withholding has been assigned to a seasoned tax official Dr Muhammad Zubair Chief Sales Tax. He has vast experience of dealing in cases of sales tax refunds and input tax adjustments and also drafted different procedures/rules and tax laws for the FBR to handle the refund related issues in the past.