A proposal is being discussed by the budget makers to amend recovery rules in upcoming budget (2015-16) for inclusion of all tax defaulters' names on Exit Control List (ECL) to prevent escape of big fish. Sources said on Monday that the Federal Board of Revenue (FBR) has received a budget proposal (2015-16) from its Chief Commissioner of Karachi to amend recovery rules for inclusion of names of all tax defaulters in the Exit Control List (ECL) to bar escape of big defaulters.
According to the budget proposals of Hafiz Muhammad Ali Indhar Chief Commissioner Regional Tax Office (RTO) Karachi for Finance Bill 2015, the proposals are related to income tax and sales tax with specific focus on placing the names of tax defaulters on the ECL.
On invoking the recovery provisions, it has been experienced that most of the tax defaulters flee the country leaving behind huge amount of outstanding tax. It is accordingly proposed that in recovery rules addition be made that name of the tax defaulters to be entered in ECL enabling recovery provisions more effective and meaningful.
The RTO suggested that SRO.1125 dated 31-12-2011 deals with the five major export oriented sectors. Thorough perusal of clause IX of SRO reveals that registered manufacturers who process goods inclusive of fabrics (owned by other persons) shall charge tax at the rate of 2 percent as processing charges. Whereas in practice most of the wholesalers are also engaged in processing of goods of others however, SRO is silent on the processing charges for wholesalers. The registered wholesalers are processing goods owned by the manufacturer and pay sales tax @ 2 percent. There is ambiguity as to whether manufacturer can avail this facility or the Wholesaler acting as middleman between two manufacturers is also entitled to pay sales tax @ 2 percent of the processing charges received by him. The question of claiming input tax also arises since the invoices are in the name of the wholesaler, but he has no manufacturing facility and registered manufacturers who seek his help claim input tax. The SRO needs further elaboration/clarification in this connection.
Despite the insertion of sub-section 3 in section 21 appellate courts have been very liberal to extend favour to the Registered Persons in respect of transactions made with the blacklisted units citing the rational that those units were active at the time of transaction and supplier or buyer cannot be held responsible for that purpose. Adjudication by courts has left a room for further appropriate addition in the section, RTO Karachi suggested.
According to the special procedure Rule 2007 vide SRO.480(I)/2007 dated 09-06-2007, separate mechanism for payment of sales tax was introduced for retailer (including manufacturer cum retailer and importer cum retailer) and commercial importer and other. A retailer was required to pay sales tax at the rate of 0.75 percent of total turnover. And the manufacturer, importer and wholesaler were required to pay sales tax at the standard rate (16 percent) in the period of 2012-13 with the facility of claiming input tax as well. However, a wholesaler-cum-retailer was specifically excluded from the purview of the rules for retailers and further vide SRO.1/2010 dated 31-12-2010 manufacturers-cum-retailers were also excluded from category of retailers however SROs and Act is silent about importers-cum-retailers as to whether importer-cum-retailer shall be assessed under special procedure rules for importers or retailers and at what rate. This ambiguity needs to be clarified, Chief Commissioner RTO Karachi added.