WORKSHOP ON SALES TAX Pearl Continental Hotel, Karachi 21 – 22 July 2005

1. WORKSHOP ON SALES TAX Pearl Continental Hotel, Karachi21 – 22 July2005

2. CONTENTS • Core Concepts • Registration • Determination of tax • Book keeping, records and returns • Penalties and additional tax • Audit • Adjudication appeals and ADRC • Provincial sales tax on services • Rules • Case study • Questions & answers session

3. CORE CONCEPTS By SYED MOHAMMAD SHABBAR ZAIDIPartnerA. F. Ferguson & Co.

4. CORE CONCEPTS • Scope of tax • Liability of sales tax • Taxable activity • Registered person • Taxable supplies • Zero rating • Exemption • Taxable goods • Goods • Supply • Time of supply • Value of supply • Tax fraud • Tax period

5. CORE CONCEPTS Scope of tax

6. REGISTRATION By ASIF ALI KHANSenior ManagerTaseer Hadi Khalid & Co.

7. REGISTRATION • Registration • Compulsory Registration • De-registration • Black listing and suspension of registration • Change in registration particulars • Transfer of registration • Revision of registration certificate • Penalties

8. REGISTRATION Registration • Registered person A person who is registered or is liable to be registered under the Sales Tax Act 1990 • Requirement of registration Basic conditions • Person should beengaged in making taxable supplies in Pakistan (including zero rating supplies) • Taxable supplies should be in the course or furtherance of any taxable activity carried on • Person should not already be registered

9. REGISTRATION Registration Persons required to be registered • Manufacturer having annual turnover from taxable supplies, in any tax period during last twelve months, exceeding Rs. 5,000,000 • Retailer having value of supplies exceeding Rs. 5,000,000 in any period during the last twelve months • Importer • Wholesaler (including Dealer) • Distributor • Person required to be registered for any duty or tax collected or paid under sales tax mode, under any Federal or Provincial law

10. REGISTRATION Registration Persons required to be registered – cont’d • Manufacturer General criteria: • A person who engages, whether exclusively or not, in the production or manufacture of goods, irrespective that the raw material of which the goods are produced or manufactured are owned by him

11. REGISTRATION Registration Persons required to be registered – cont’d • Manufacturer - cont’d Specific inclusion: • A person who by any process or operation: • Assembles; • Mixes; • Cuts; • Dilutes; • Bottles; • Packages; • Repackages; or prepare goods by any other manner

12. REGISTRATION Registration Persons required to be registered – cont’d • Manufacturer - cont’d Specific inclusion: • Any person who disposes of his assets in any fiduciary capacity including: • An assignee or trustee in bankruptcy • Liquidator • Executor • Curator • Manufacturer • Producer • Any other person

13. REGISTRATION Registration Persons required to be registered – cont’d • Manufacturer - cont’d Specific inclusion: • Any person, firm or company which owns, holds, claims or usesany patents, proprietary or other rights to goods being manufactured, whether in his or its name, or on his or its behalf, as the case may be, whether or not such person, firm or company sells, distributes, consigns, or otherwise disposes of such goods Exceptional case of manufacturer-cum-exporter for refunds

14. REGISTRATION Registration Persons required to be registered – cont’d • Retailer • A person supplying goods to general public for the purpose of consumption • Importer • A person who lawfully imports goods in Pakistan • Wholesaler (including Dealer) Any person who • who carries on the business of buying and selling goods by wholesale or of supplying or distributing goods, directly or indirectly, by wholesale for cash / deferred payment or for commission or other valuable consideration

15. REGISTRATION Registration Persons required to be registered – cont’d • Wholesaler (including Dealer) – cont’d Any person who • stores such goods belonging to others as an agent for the purpose of sale • supplying taxable goods to a person whose income is not liable to tax under the Income Tax Ordinance, 2001but has deducted tax under section 153 of the Ordinance • in addition to making retail supplies is engaged in wholesale business

16. REGISTRATION Registration Persons required to be registered – cont’d • Distributor • A person appointed for a specified area by: • manufacturer; • importer; or • any other person to purchase goods from him for further supply • A person who in addition to being a distributor is also engaged in supply of goods as a wholesaler or a retailer

17. REGISTRATION Registration Persons required to be registered – cont’d • Under Federal Excise Act 2005 FED is collectible under sales tax mode on: • advertisements on closed-circuit TV and cable TV network • facilities for inland travel by air or railway • carriage of goods by air • shipping agents authorised to transact business on behalf of others • telecommunication services in respect of telephone, telegraph, telex and alike

18. REGISTRATION Registration Persons required to be registered – cont’d • Under Federal Excise Act 2005 – cont’d • Person providing services liable to FED are now required to be registered under FED Act only. Earlier, such persons were required to be registered under Sales Tax Act • Person already registered under Sales Tax Act for provision of excisable services in Sales Tax mode are not required to be registered under FED Act • Persons registered under Sales Tax Act, which now provides services liable to FED are also not required to be registered under FED Act

19. REGISTRATION Registration Persons required to be registered – cont’d • Under Provincial Ordinance • Person providing services of: • advertisements on TV / Radio • Courier • Hotels / Clubs • Person providing services as • Custom agents • Ship chandlers • Stevedores

20. REGISTRATION Registration Procedure Required Person Registration application (FORM ST-1) & Stock Declaration (Annexure) If not Complete Issuance of Registration Certificate (Annexure B) Central Registration Office Local Registration Office Completion of verification If Complete

21. REGISTRATION Registration Procedure – cont’d Jurisdiction • Company Area of registered office • Other person Area of business activity • Other person having single manufacturing unit, where business premises and unit are in different areas Area of manufacturing unit

22. REGISTRATION Registration Procedure – cont’d Modes for filing of registration application • If before LRO • Through Registered AD mail • Through Courier • If directly before CRO • Through Email at staxregistration@cbr.gov.pk • Forms should be signed & scanned Timings for registration • Once liable, should be registered before making taxable supplies • CRO to register within 7 days of filing of application or reject within 15 days of filing

23. REGISTRATION Compulsory Registration Conditions • Liable person fails to apply for registration • Inquiry by LRO / other office, authorized by CBR, proves that the person is required to be registered Procedure • Inquiry for requirement of registration • Submission of written report to LRO • issuance of notice by LRO and opportunity of personal hearing if notice is replied by the person contesting his liability to be registered • Decision by the LRO & if registration required transmission of the case to CRO • if no reply to notice, LRO forwards cases to CRO for compulsory registration

24. REGISTRATION Compulsory Registration – cont’d Obligations • Compulsorily registered person to comply with all the provisions of the Act • Failure may lead to access / examination of record, documents etc. as provided in section 25 and consequently assessment of sales tax payable under section 11 of the Act Wrong compulsory registration • Due to inadvertance, error or misconstruction • Recommendation for de-registration by LRO • Cancellation of registration by CRO • Person shall not be liable to pay any tax, default surcharge or penalty, subject to section 3B

25. REGISTRATION De-registration • Conditions • discontinuance of business • supplies becomes exempt from tax • taxable turnover during last 12 months falls below the threshold limits • failure to file return for 6 consecutive months • tax obligations not to be affected

26. REGISTRATION De-registration – cont’d • Procedure – if application filed • Application to LRO on ST-3 form • Completion of audit or inquiry and directions for discharge of liability through final return by LRO • LRO specifies the date of de-registration not later than 3 months of the application or dues clearance, whichever is earlier • Cancellation of registration by CRO on recommendation of LRO • Procedure – failure to file returns • LRO issues written notice and grants opportunity of hearing • LRO recommends CRO if no liability is outstanding

27. REGISTRATION Black-listing & Suspension of Registration Conditions • Issuance of fake invoices • Evasion of Tax • Tax fraud • Only Collector is empowered to take action Procedure • Confirmation of facts by the Collector • Opportunity to clarify position • Order in writing to blacklist or suspend registration to affected person, CRO and STARR • 90 days time for completion of inquiry if records produced • 90 days time for show cause on completion of inquiry

28. REGISTRATION Change in Registration particulars Conditions • Change in name or address • Change in other particulars • Verification for change of business category Procedure • Notification of change on From ST-2 to LRO/CRO within 14 days of such change • Submission of Form ST-1 additionally for change in address • Submission of From ST-3 addtionally for change in ownership • Issuance of revised registration certificate by CRO

29. REGISTRATION Transfer of registration Conditions • Discretionary powers of CRO • Shifting of business activity • Any other valid reason given by the registered person Procedure • Issuance of intimation letter by CRO at own motion or on application by the person • Intimation letter to be issued to registered person and the concerned Collectorates • Transfer of records and responsibilities

30. REGISTRATION Revision of registration certificate Conditions • Conversion of multiple registration into single registration Procedure • Application on ST-1 for single registration to CRO • Ascertainment of of tax liabilities by CRO from concerned Collectorates / LTU / RTO • Issuance of revised registration certificate by CRO and merger of previous registration number

31. REGISTRATION Penalties • Failure to make an application for registration Rs.10,000 or 5% of the tax involved whichever is higher • If not applied within 60 days of the start of business activity Imprisonment for a term which may extend to 3 years or with fine which may extend to equivalent to amount of tax involved, or both. • Failure to notify changes in particulars of registration Rs.5,000

32. DETERMINATION OF TAX LIABILITY By RASHID MALIK

33. DETERMINATION OF TAX LIABILITY • How is the tax liability determined • Meaning of output tax • Meaning of input tax • Input tax not available • Cash transactions • Tax paid on stock before registration • Debit notes and credit notes • Refund of sales tax

34. DETERMINATION OF TAX LIABILITY How is the tax liability determined

35. BOOK KEEPING, RECORDS AND RETURNS By MEHMOOD A. RAZZAKPartnerMehmood Idress Masood & Co.

36. BOOK KEEPING, RECORDS & RETURNS • Records of supplies and purchases • Retention of records • Tax invoice • Returns and types of returns • Returns on certain occasions • Tax period • Due date

37. BOOK KEEPING, RECORDS & RETURNS Records of supplies and purchases

38. PENALTIES & ADDITIONAL TAX By MOHAMMAD ALIConsultantQaiser Mufti Associates

39. PENALTIES & ADDITIONAL TAX • Penalties • Additional tax

40. PENALTIES & ADDITIONAL TAX Penalties • Non furnishing a return within the due date • Non issuance an invoice when required • Un-authorized issuance an invoice in which an amount of tax is specified • Failure to notify material nature changes in the particulars of registration • Failure to deposit the amount of tax due or any part thereof in the time or manner laid down under the Act • Repetition of erroneous calculation in the return during a year whereby amount of tax less than the actual tax due is paid

41. PENALTIES & ADDITIONAL TAX Penalties • Failure to make application for registration • Failure to maintain records as required • Non compliance with the provisions of section 25 • Failure to furnish the information required under sub-section (5) of section 26 • Whosoever commits, causes to commit or attempts to commit the tax fraud • Violation of embargo placed on removal of goods • Obstruction of the authorized officer in the performance of his official duties

42. PENALTIES & ADDITIONAL TAX Penalties • Non compliance of section 73 of the Act • Failure to fulfill any of the conditions, limitations or restrictions prescribed • Contravention of the provisions of this Act for which no penalty has, specifically, been provided • Where any officer of Sales Tax authorized to act under this Act, acts or omits or attempts to act or omit in a manner causing loss to the sales tax revenue or otherwise abets or connives in any such act

43. PENALTIES & ADDITIONAL TAX Additional Tax • If a registered person does not pay the tax due or any part thereof, whether wilfully or otherwise, in time or in the manner specified under this Act, rules or notifications issued thereunder or claims a tax credit, refund or makes an adjustment which is not admissible to him, or incorrectly applies the rate of zero per cent to supplies made by him, he shall, in addition to the tax due, pay default surcharge.

44. PENALTIES & ADDITIONAL TAX Additional Tax • For the first six months of default = @ 1.5% per month of the amount of tax due or the amount of refund erroneously made • From 7th months onwards = @ 1.5% per month of the amount of tax due or the amount of refund erroneously made • In case default is on account of tax fraud= @ 2% per month of the amount of tax evaded or the amount of refund fraudulently claimed, till such time the entire liability including the amount of default discharge is paid

45. AUDIT, RULES & SPECIAL PROCEDURES By ADNAN AHMAD MUFTIPartnerShekha & Mufti, Chartered Accountants

46. AUDIT, RULES & SPECIAL PROCEDURES • Audit Suspended todate except by DRRA • Modes of Audit of Sales Tax Records • Routine Audit • Investigative Audit • Audit by Special Auditors • Sales Tax Rules 2005 • Blacklisting & Suspension of Registration • Credit and Debit Note • Apportionment of Input Tax • Sales Tax Special Procedures Rules 2005 • Minimum value addition by importers • Minimum value addition by retailers • Sales Tax on Electric Power & Gas • Issuance of Tax Invoices against Advance Payment Receipt

47. AUDIT, RULES & SPECIAL PROCEDURES MODES OF AUDIT

48. AUDIT, RULES & SPECIAL PROCEDURES Routine Audit • At any time, but once a year, a registered person may be asked to produce both manual or computerised record lying in his possession or possession of his agent • Audit Observation to be replied in Fifteen (15) Days • Audit report, carrying quantification of charges or taxes, issued • 100% Penalty waived if unpaid principal tax alongwith default surcharge is paid before receipt of notice of audit • 75% penalty waived if unpaid principal tax alongwith default surcharge is paid at any time before issuance of show cause notice

49. AUDIT, RULES & SPECIAL PROCEDURES Routine Audit Monitoring, Control and Procedure • Audits selected through Computer Programming • Collector / Additional Collector may also select audits manually based on CBR’s directives • A particular audit team cannot audit the same registered person more than once in 2 years • Audit Notice to be given to taxpayer 15 days before the scheduled date of audit • Audit to be completed within 3 to 4 days unless extended by Assistant Collector in writing

50. AUDIT, RULES & SPECIAL PROCEDURES Routine Audit Monitoring, Control and Procedure • Audit reports prepared by auditors to be approved by Deputy / Assistant Collector and finally by Additional Collector within 14 days of commencement of audit • Audit report to be sent to taxpayer within 4 weeks • All correspondence, notices and orders sent to the registered persons to bear the seal and signature with contact details of the officer issuing it. • Auditors bound to affix their signatures and official seal on records checked during audits • Audit Completion Certificate as per STGO