A strange attempt has been made in the Federal Board of Revenue to treat all cancelled sales tax registrations as de-registered, which would make the sales tax database at national level vague. Sources told Business Recorder here on Saturday that legally treating cancellation of sales tax registration as de-registration is a violation of Sales Tax Rules for Registration, Compulsory Registration and De-Registration.
Under rule 11 of the Sales Tax Rules, de-registration and cancellation of registration are entirely two different things. The registered persons have to follow a detailed procedure for obtaining de-registration certificates. Once a person is de-registered, his sales tax registration number (STRN) cannot be restored. In case of cancellation of registration by tax department, the proceedings can be initiated against the individual. The department can also re-activate the sales tax registration in cases of cancellation. Thus, cancellation of sales tax registration and de-registration process cannot be treated as same under the Sales Tax Rules. The de-registration application has been filed by the registered person whereas the cancellation of registration is being done by the tax department. Separate processes have been applied in two different legal situations under the sales tax law.
For example, if a registered person fails to file tax return for six consecutive months, the FBR can cancel his registration. As a result of proposed measure, the consecutive non-filing of returns would be considered as de-registration instead of cancellation of registration. In cases of de-registration, proceedings cannot be initiated as compared to cancellation of registration.
Sources said that Pakistan Revenue Automation Limited (PRAL) has requested the FBR to treat all cancelled sales tax registrations as de-registered. In this connection, a meeting was also convened in the FBR House to examine the pros and cons of the proposal. The issue is mainly related to the PRAL's database where non-availability of the option for modification of software pertaining to registration has created the problem. If the FBR notify to treat all cancelled registrations as de-registered, the FBR's database would not distinguish between the cancelled and de-registered sales tax 'registrations'.
During 2011-2012, a total of 1,350 applications of de-restorations were received and after following the due process, all 1,350 individuals/units were de-registered with the sales tax department. In 113 cases, the sales tax registrations were cancelled by tax department. After cancellation of sales tax registrations, 18 were re-activated or their registrations were resorted. Thus, the department cannot give similar treatment to the de-registered persons or cancelled registrations.
Under the rules, every registered person who ceases to carry on his business or whose supplies become exempt from tax, shall apply to the LRO for cancellation of his registration in form STR-3, and the LRO, may recommend to the CRO to cancel the registration of such person from such date as may be specified, but not later than three months from the date of such application or the date all the dues outstanding against such person are deposited by him, whichever is the later.
A registered person whose total taxable turnover during the last 12 months remains below the limit specified in rule 4, may apply to the LRO for deregistration in form STR-3 or the Collector may, on his initiative, start proceedings for his de-registration.
The Local Registration Office, upon completion of any audit or inquiry which may have been initiated consequent to the application of the registered person for deregistration, shall direct the applicant to discharge any outstanding liability which may have been raised therein by filing a final return. If a registered person fails to file tax return for six consecutive months, the LRO may, without prejudice to any action that may be taken under any other provision of the Act, after issuing a notice in writing and after giving an opportunity of being heard to such person, recommend to the CRO for cancellation of the registration after satisfying itself that no tax liability is outstanding against such person, sales tax rules added.