Chairman Federal Board of Revenue (FBR) Mumtaz Haider Rizvi has categorically said on Thursday that the FBR would not withdraw section 8A (joint and several liability of registered persons in supply chain where tax is unpaid) of the Sales Tax Act, 1990 in budget (2012-2013) and enforcement would be improved to promptly check wrong claimants of input tax adjustments within the supply chain, causing loss of billions to the national kitty.
Responding to several complaints of misuse of Section 8A of the Sales Tax Act, 1990, Mumtaz Haider Rizvi informed the National Assembly Standing Committee on Finance chaired by MNA Fouzia Wahab that illegal input tax adjustments and fake sales tax refunds to the tune of Rs 132 billion has been obtained by the unscrupulous elements during current year.
We are not changing the sales tax law and action against the suspected persons seeking inadmissible input tax adjustments within the supply chain would be taken in consultation with the relevant trade bodies and associations. It is the best international practice which has been incorporated in the Sales Tax Act 1990.
However, the FBR has joined hands with the trade bodies and federations so that the concerned associations should be taken into confidence before taking action against such wrong claimants of tax adjustments etc. The FBR will not take action against any registered person till the federation gives its concurrence to avoid any kind of harassment among the business and trade.
The federation/chamber has given written assurance to the FBR that it would share details of any taxpayer allegedly involved in obtaining wrong input tax adjustments etc. FBR Chairman further informed the committee that the board has stopped taking extreme actions like registration of FIRs against the units and arrest of the suspected persons involved in obtaining inadmissible input tax adjustments.
As an alternate, the FBR will now take action with the co-operation of the concerned trade bodies and federations/chambers so that they should know about the wrongdoings of their members. Then the concerned federation would be responsible on the behalf of the whole sector, any registered taxpayer would not have any compliant against the tax department.
The concept of the Value Added Tax (VAT) under the Sales Tax Act is working on the basis of self assessment scheme backed by post-clearance audit regime. There are cases of illegal input tax adjustments involving billions of rupees in a number of sectors. This is primarily an enforcement issue and a committee has been formed in Karachi to deal with the issue of input tax adjustments. Tax authorities will visit Karachi in couple of day and taxpayers having any grievance can meet the tax officials for re-dressal of the complaints, he maintained.
When asked about sales tax registration of persons who later commit tax frauds, FBR Chairman was of the view that how we can stop issuing sales tax registrations to the new taxpayers on the assumption that they would commit tax frauds in future. Some of the stakeholders from Karachi and other associations informed the Standing Committee on Finance that the tax officials are grossly misusing powers under Section 8A (joint and several liability of registered persons in supply chain where tax unpaid) of the Sales Tax Act, 1990. A large number of businessmen have been victimised under the cover of Section 8A of the Sales Tax Act, 1990.
It is a very strange law that if a taxpayer has obtained supply from a person showing as "Active Taxpayer" on the FBR''s official website and after five years the department know that the said "Active Taxpayer" is involved in business of fake/flying invoices, how the taxpayer would know that he would be declared as fraudulent taxpayer after 4-5 years. It is the prime responsibility of the FBR to check illegal input tax adjustments on the basis of fake and flying invoices at the time of committing tax fraud. When the department knows about the fraud after a period of five years, why the whole supply chain has been penalised under Section 8A of the Sales Tax Act, 1990.
When the FBR places the name of a taxpayer on its website as compliant taxpayer or "Active Taxpayer," the business community know that there is no problem in obtaining supplies from the "Active Taxpayer" on the FBR''s official website. If the FBR does not know that the person showing as "Active Taxpayer" on the FBR website is actually a fraudulent person, it could be either FBR''s negligence or ignorance.
The representatives of the business and trade were surprised that the Section 8A of the Sales Tax Act, 1990 also says, "Board may by notification in the official gazette, exempt any transaction or transactions from the provisions of this section". This is a very tricky sub-section of Section 8A as it gives discretionary powers to the tax official to exempt any sector from the provisions of the joint and several liabilities of registered persons in supply chain.