A number of legal and procedural changes in federal tax laws are expected in coming budget (2017-18) under the exercise to simplify sales tax/excise laws including possible adjustment of Federal Excise Duty (FED) on accrual basis and concept of group taxation in the Sales Tax Act, 1990.
Sources said the Federal Board of Revenue (FBR) is considering various budget proposals of the Tax Reform Commission's sub-committee for simplifying indirect tax laws. The FBR formed a committee for simplifying tax laws. Task and mandate of the committee was to suggest amendments to be considered in the forthcoming budget for 2017-18 in relevant laws to simplify (but not to make structural changes in) the existing laws relating to federal indirect taxes, without compromising the revenue of the government.
Within this limited time, the members of the sub-committee deliberated on various matters relating to indirect taxes, and based on that, submitted this initial report. Tax simplification is an ongoing process which evolves over time. Therefore, it was recommended to let this sub-committee work even after the current budget is announced towards other long-term issues for simplifying the indirect tax regime eg levy of sales tax on services on either origination or termination basis and single return with identification of provincial head of account and direct deposit of share of tax of each province, etc.
Following are the major amendments proposed in the existing tax laws and their rationale behind each proposal:
It is recommended that collection of sales tax on advances should either be completely done away with or restricted to those sectors where there is problem/ possibility of revenue leakage.
1. Claiming input tax within 6 months u/s 7 be increased to 1 year.
2. Filing of refund claim for unadjusted input tax u/s 10 read with relevant rules, can be reduced to 6 months, which should be optional.
3. Time period for filing refund claim u/s 66 can be increased from 1 year to 2 year.
4. Time limit for payment of input tax u/s 73 ( 180 days) can either be withdrawn as government now allow input tax once sales tax is paid by seller (under STRIVE).or time limit should be increased to at least 1 year.
5. Time limit for issuing debit/credit notes u/s 9, as provided under the rules, can be increased from 180 days to 1 year.
-- Section 8 (1) (ca )--Goods or services in respect of which sales tax has
-- Not been deposited in the Government treasury by the respective supplier.
-- Section 8 (1) (caa)--Purchase
-- In respect of which a discrepancy is indicated by CREST or input tax of
-- Which is not verifiable in the supply chain.
-- Section 8 (1) (d)---Fake invoices Section 8 (A)---Joint and several liability of registered persons in supply chain where tax unpaid.
Included therein are items which are consumed by Manufacturing Sector as Raw-Material which are now subject to Extra Tax @ 2 percent in addition to the normal 17 percent sales tax. Further as per section 8(1)(c) of the Sales Tax Act, 1990,the claim of this extra tax of 2% by way of input tax is prohibited.
It is proposed that the expression "sold in retail" be inserted to the preamble of the rule 58S to read as under: (proposed insertion in italics). Option 1: "58S. Application.- The provisions of this Chapter shall apply to supplies of goods "sold in retail" specified in the following table...............". OR Option 2: Insert an additional sub-rule under Rule 58T as below in the "Special Procedure for Payment of Extra Sales tax on Specified Goods": "The purchases made by registered manufacturers, who acquire the specified goods to manufacture or produce taxable goods, shall not be subject to extra tax under this Chapter".
Further tax @ 2 percent under section 3(1A) is applicable on supplies of goods to unregistered persons.
Clause (a) of section 8(1) is sufficient to disallow input tax adjustment on goods/services used for purpose other than taxable supplies, therefore, additional conditions, being superfluous, should be deleted.
Brings consistency in provincial laws of sales tax to remove the arbitrage and possibility of avoidance of tax by shifting certain activities to Islamabad from other provinces.