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1. 1 IMPACT OF BUDGET 2007 ON SALES TAX Presentation by
MUHAMMAD AWAIS, ACA
Ford Rhodes Sidat Hyder & Co
A Member of Ernst & Young Global Limited
3. 3 Definitions Cottage Industry [Section 2(5AB)]
It means a manufacturer
Whose annual turnover from taxable supplies made in any tax period during the last twelve months does not exceed Rs. 5 million, or
Whose annual utility (electricity, gas and telephone) bills during the last 12 months do not exceed Rs. 600,000.
A corresponding amendment has been made in the Sixth Schedule in Serial No. 3 of Table II whereby the supplies made by Cottage industry have been exempted.
4. 4 Definitions Input/Output Tax [Section 2(14)/2(20)]
The definition of input tax and output tax are proposed to be expanded to include the sales tax paid under the four Provincial Sales Tax Ordinances, 2000 and Islamabad Capital Territory (Tax on Services) Ordinance, 2000.
Previously this was communicated through Circulars and Notifications.
5. 5 Definitions Retail Price [Section 2(27)]
The word “duties” is proposed to be added in the definition of retail price.
This amendment seems to be of corrective nature so as to bring it in line with the definition of “value of Supply” in section 2(46).
Tax Fraud [Section 2(37)]
Definition of Tax fraud includes falsifying the sales tax invoice.
This term is proposed to be expanded to include causing falsification of sales tax invoice as well.
6. 6 Definitions Time of Supply [Section 2(44)]
It is proposed that the sales tax will now be levied at the time when delivery of goods is made by the supplier.
Presently Sales tax is leviable at the earlier of the time of delivery of goods or the time when payment is received by the supplier in respect of such supply.
Effectively advance payments were subjected to sales tax and this resulted in major complications for tax payer as well as the sales tax authorities and was a major cause for litigation.
This is a welcome amendment and fulfills the long outstanding demand of the tax payers.
7. 7 Zero Rating Zero Rating [Section (4)]
Board’s Authorization to zero rate supplies made to registered persons, who are engaged in the manufacture & supply of zero rated goods, through a General Order.
8. 8 Tax Credit not allowed Tax Credit not allowed [Section 8(1)(a)]
Deals with input tax credit not allowed.
Term “for the manufacture or production of taxable goods” to be deleted.
The Sales Tax department has been disputing the claim of input tax on utility bills related to residential colonies of various manufacturing units, now SRO 464(I)/2007 amending SRO 490 (I)/2004 prescribes that input tax paid on supply of electricity and gas to residential colonies of registered persons shall not be allowed.
9. 9 Adjustable Input Tax Adjustable Input Tax [Section 8(B)]
The proposed amendment seeks to:
Limit the input adjustment to a maximum of 90% of the Out put tax for a tax period.
Conditional adjustment of excess input tax, on yearly basis in the second month following the end of financial year.
Furnishing a statement along with annual audited accounts duly certified by the auditors showing value addition of less than 10%.
For other registered person, adjustment allowed subject to conditions as may be specified by Board.
Permission of the adjustment of input tax on acquisition of fixed assets in 12 equal installments after start of commercial production.
Board empowerment to exclude any person.
Disciplinary action against Auditor.
10. 10 Adjustable Input Tax The following have been rescinded vide SRO 479(I)/2007.
Sales Tax (Refund of excess Input tax to manufacturers) Rules, 2005 issued vide SRO 666(I)/2005
Sales Tax (Refund of excess Input tax to the Dealers, Distributors and Wholesalers) Rules, 2005 issued vide SRO 813(I)/2005
The rescindment of above means that carry forward of input tax permitted for three months under above Rules is no longer available.
11. 11 Refund of Sales Tax Refund of Sales Tax [Section 10]
Substitute the section
Confine the refund claims to persons who are engaged in making zero rated supplies or export.
Period to allow refund has increased from 30 days of filing of return to 45 days of filing of refund claim.
Any tax, default surcharge or penalty payable under any law administered by the Board may be adjusted against the refund claim.
Power of Board to prescribe procedures for refund of excess input tax against other taxable supplies.
12. 12 Refund Procedure for persons registered in LTU SRO 465(1)/2007 Processing of Refund Claims of Large Tax Payers Rules, 2007
Rules introduced for persons registered in LTU, which lay down procedure for processing of refund claims, Significant extracts are as under:
Claimant shall file a refund application to the Collector Sales Tax LTU.
Filing of an undertaking regarding genuineness of refund
A revolving bank guarantee equivalent to the amount of refund claim which would be valid for at least 120 days.
The collector shall allow the refund within 3 days of receipt of required submissions
Failure to pay an amount of sales tax
Claimed inadmissible input tax adjustment
Any objection shall be conveyed to claimant within 7 days of receipt of claim.
13. 13 Records Records [Section 22]
Board empowered to require a registered person to declare & use as many number of bank accounts as specified by Board to receive/make payment on sale/purchase and make payment of tax.
Furnishing of copy of annual audited accounts alongwith certificate by auditor, certifying the payment of tax due.
No time limit or format of auditors certificate prescribed
14. 14 Records Retention/Power to arrest Retention of Records and Documents [Section 24]
Increased upto 5 years from 3 years.
The affect is the removal of anomaly with section 36(1) wherein any sales tax not levied due to collision is recoverable within 5 years through show cause notice.
Power to arrest and Prosecute person committing tax fraud [Section 37(A)]
Proposal to delete the words ”Supply or supplies made by him” thereby expanding the scope of persons who can be arrested for tax fraud.
Power to Call for Information [Section 38(A)]
Extension of powers to call information for licenses & authorizations from a regulatory authority
15. 15 Alternative Dispute Resolution Alternative Dispute Resolution [Section 47(A)]
Substitution of the existing provision.
No time period specified for the Board to pass an order.
A comparison is made below
17. 17 Recovery of Arrears of Tax Recovery of Arrears of Tax [Section 48]
Power of Board or any officer authorized to write off un-recovered arrears.
Delayed Refunds [Section 67]
Interest @ 6% of delayed refund is already available.
Starting date for interest to be the date of filing of the refund claim in place of date of filing of return.
Federal Board of Revenue [Section 76]
Replace FBR with CBR.
18. 18 Sixth Schedule Although there are numerous changes of the Custom Tariff Codes presumably to bring it in line with revised Custom Tariff code, by and large the exemptions under the Sixth Schedule have remain unchanged.
19. 19 Sales Tax Special Procedure Rules, 2007 Chapter II- Special Procedure for payment of sales tax by retailers
Application on persons registered as retailers and jewellers.
The registered retailers , are now liable to charge and collect Sales Tax and pay Income Tax against annual turnover on the basis of specified slab rates.
Turnover includes value of all supplies of retailer including those specified in Third Schedule & excluding the exempt & zero rated supplies.
Filing of return by September 30 for a financial year as prescribed under the Income Tax Ordinance, 2001.
21. 21 Sales Tax Special Procedure Rules, 2007 Chapter IV- Special Procedure for Collection and payment of sales tax on natural Gas
Sales tax at the rate of 24% of total amount billed.
This rate includes 15% sales tax chargeable for supplies by the gas company and 9% on value addition made by CNG stations.
CNG Stations will not be required to be registered & file return.
22. 22 Significant SROs SRO 463(1)/2007 Amnesty from Payment of default Surcharge and Penalties
Amnesty has been provided to persons (from default surcharge and penalties) against whom sales tax is outstanding on account of any:
Show Cause Notice
Failure to pay an amount of sales tax
Claimed inadmissible input tax adjustment
Refund due to reason other than tax fraud
Subject to the condition that the principal amount of sales tax is paid by June 30, 2007
23. 23 Significant SROs SRO 466(1)/2007 Certain goods liable to Sales Tax at the rate of 20%
Sales tax on import and local supply of various raw related to plastic and polymers, paper and paperboard and iron steel materials and finished goods have been enhanced to 20% of the value of goods.
Most of materials and goods are the same that were previously covered under rescinded SRO 389(1)/2007 dated June 18, 2001.
24. 24 Significant SROs Abolition of special procedures for minimum value addition on various goods
The minimum value addition which was prescribed for various sectors has now been abolished with effect from July 01, 2007 which would now come under normal sales tax regime. Some of the sectors are as under
Fixation of value of supply of certain iron and steel scrap
Fixation of value of billets produced by Pakistan Steel Mills, Karachi
Sales tax by manufacturers of biscuits, confectionery and snacks
On supply of certain goods i.e. chipboard, cone board, color board, paper cones & reconditioned paper cones.