The Federal Board of Revenue has included the definition of Computerised Risk-based Evaluation of Sales Tax (Crest) in Sales Tax Act, 1990 to have legal backing for taking action in cases framed on the basis of discrepancies detected by the system.
Arshad Shehzad a leading sales tax advocate explained sales tax budget (2013-14) on Thursday that the definition of Crest is proposed to be inserted in Sales Tax Act, to provide legal cover. Recently, the FBR has developed Crest software and it was successfully implemented in FBR this year. The software electronically cross verifies input/output declaration of sales tax figures and in case of variation or deference confronts buyer and seller to justify their position. Large number of cases has been recently framed by the tax authorities on the bases of findings of the Crest.
Recently, Lahore High Court had granted stay in which one of the observation/ground was non existence of Legal coverage of Crest within the law was sought by the petitioners. The use of IT is though essential but placing over reliance and ignoring practical data posting errors put unnecessary hassle for existing regime. The board while introducing this micro management system failed to introduce error rectifying provisions within the system which is essentially also necessary.
A new sub section was proposed to disallow input tax credit where e-discrepancy indicated by Crest has not been verified in supply chain of such purchase. The element of fraud and abuse of input tax credit is increasing day by day. The policy maker rather plugging ways and means to curb the menace are introducing amendment one after another in each year and yet stands completely failed. The genuine taxpayers at the other end were seriously affected by both unscrupulous element as well as strict sales tax law, where they were put in undue burden for the misdeed of anyone else.
A new sub section 3(1)(b) is also proposed to be inserted to delegate powers to the board to levy and collect tax on taxable supplies in lieu of standard rate of tax on the bases of production capacity, machinery, undertaking, establishment or installations producing or manufacturing such goods and fixed bases, as it may deem fit, from any person who is in a position to collect such tax due to the nature of the business.
Through Finance Bill, a new definition of supply chain is proposed to be inserted in Sales Tax Act, according to introduce definition all stages of transactions between buyer and supplier from the basic raw material to the finish product are attempted to be covered within the definition of supply chain. It has been observed that in case of an incidence of input tax fraud, FBR under the umbrella of section 8-A brought entire supply chain within the scope of an inquiry. Accordingly the definition of supply chain is required to be inserted
It is proposed that input tax would remain inadmissible against purchases from black listed or suspended unit, even the transaction is well supported with crossed cheque or banking instrument and compliance were made in terms of section 73. Accordingly the legal cover given in this respect in section 21 was proposed to be omitted, he said.
By insertion of new sub section 21(4), a blanket discretionary powers for blocking of refund and input tax adjustment and further action are proposed to be delegated to the board, tax commissioner or any authorised officer, where there is reason to believe that a registered person is engaged in issuing fake or flying invoices, claiming fraudulent input tax or refunds, does not physically exist or conduct actual business or is committing any other fraudulent activity, the board, Commissioner or such officer may after recording reasons in writing, block the refunds or input tax adjustment of such person and direct the concerned commissioner having jurisdiction for further investigation and appropriate legal action, Finance Bill proposed.
He said that registered person would be required to maintain and retain gate passes, inward or outward and transport receipt as sales tax record. The increasing compliance cost, record keeping and plethora of record in this era of electronic filing, electronic verification and age of technology is nothing but burdening genuine taxpayers unnecessarily
It is proposed to insert an explanation in respect of audit and inquiry that powers for conducting audits, verification and inquiry given under section 25,38,38-A,38-B and 45-A are independent and not sub ordinate to the section 72-B. The issue of audit by the field formation without any criteria was remain in dispute in recent past, the single bench of Lahore High Court has categorically declare such powers against the spirit of the law, later on the issue was take up with Supreme Court and now it has been reverted back in intra Court Appeal. It seems that in order to avoid such litigation proceedings the hierarchy of the board has proposed to induce specific explanation under the law.
In Shehzad's opinion if the government has claimed that in order to bring transparency within the system the audits were conducted on the bases of parametric bases through computer balloting, extending such discretionary powers to the field formation is not justified and may be challenged by the trade and tax bars.
It is proposed that available powers of board to post tax staff at business premises of taxpayers be delegated to the Chief Commissioners. The whole section was introduced with the assurance of the government to use such powers sparingly, however firstly these powers were conditionally delegated to commissioners on the bases of material evidence against any unit and now extensive powers within this section available to board are proposed to transferred to Chief Commissioners
A new section delegating some more extra ordinary powers are proposed to be inserted in sales tax law. According to this section the board may by notification specify any registered person, class of registered person or any good or class of goods in respect of which monitoring or tracking of production, sales, clearance, stocks or any other related activity may be implemented through electronic or other means.
Furthermore, no taxable goods shall be removed or sold by the manufacturer or any other person without affixing tax stamp, banderole, stickers, labels etc, in any such form, style manner and date as prescribed by board. Induction of such sort of powers are clearly given an idea that sales tax act is no more going to be a self assessment scheme and more likely to be converted into a old age excise supervise manner.
It is proposed that powers for granting stay by Commissioner Appeal in cases of undue hardship be restricted to 30 days only. It is again surprising to note that where there is undue hardship why the time limit for suspension of demand is restricted till 30 days only. Induction of such amendment clearly reflects the impartial mind set of policy maker who even does not intend to allow relaxation in genuine case of hardship.
Finance Bill has proposed that only such bank account of the registered person to be treated as business account which is duly incorporated in registration profile of the taxpayer through proper insertion of change in registration particulars application by STR-I form. This apparently minor amendment would require taxpayers to incorporate all their business bank account within their sales tax registration profile to claim input tax and compliance as per law within the ambit of section 73.
Shehzad added that FBR has issued notification 501(I)/2013 through which zero rating facility is replaced with exemption. Dairy products, stationery and different items earlier enjoying zero rating facility are replaced with exemption in order to curb accrual of sales tax refunds on these items. Notification is effective from 13th June 2013.