LAHORE: Tax authorities are allegedly involved in creating sales tax liabilities on account of output tax against the suppliers of goods to zero-rated sectors instead of imposing penalties for the wrong filing of sales tax returns by the buyers.

The whole exercise is carried out under SRO1125(I)/2011, which deals with five major zero-rated sectors, i.e., textile, carpets, leather, sports and surgical goods. The said SRO is subject to output tax payable @ 16%, 6%, 4% or 5%, as the case may be.

Sources said the tax officials’ cross-match the sales tax returns date with the buyer’s returns and charge the suppliers in case null filer, non-filer, non-active, and purchases not shown as firm suppliers or falling in the non-zero rated sector. In some cases, even the buyers either show no purchases in their sales tax returns or show fewer purchases.

They added that all such defaults on the part of buyers are made the basis for creating sales tax liability on account of output tax against the suppliers.

Accordingly, said the sources, the suppliers are advised to discharge the outstanding liability on payment of sales tax @2% of the value of such supplies on account of their alleged tax fraud. The department spares no time in issuing show cause notice as to why not sales tax may not be recovered along with default surcharge and penalty under the Act.

In most of the cases, the allegations levelled by the department prove baseless and frivolous as the alleged goods are supplied under the coverage of proper zero-rated invoices, which are duly incorporated in summary statements, and sales tax returns for tax periods in question and payments against alleged transactions are received through banking channel as required by the law. No liability can be created on account of output tax in case the buyer has committed any default in reporting the same.

However, the department sources believe that it is the supplier’s duty to make sure that he is making supplies to a registered buyer, as any default in this respect may cost him on account of the output tax at the end of the day. But the suppliers believe that the department must pursue the buyer for his default instead of punishing him for the wrongdoing of the latter. They have further pointed out that section 33 of the Act provides a penalty for wrong filing of sales tax returns by a buyer, which should be activated against him.

In some cases, they said, buyers are found very well active on the taxpayers list at the time of transactions. They are subsequently blacklisted, suspended, not showing, and mismatched the purchases despite issuing valid invoices to suppliers.

Copyright Business Recorder, 2023