SALIENT FEATURES OF BUDGET 2004-05 SALES TAX

SALIENT FEATURES OF BUDGET 2004 05 SALES TAX <!--[if gte mso 10]> SALIENT FEATURES OF BUDGET 2004‑05 SALES TAX By Mr. Akhtar Javed, Advocate, Lahore Salient features of Budget 2004‑05 relating to sales tax measures taken by the Government are given in the following paragraphs. Detail comments on budgetary measures for the year 2004‑05 will' follow soon. In terms of section 3(2)(b) of the Sales Tax Act, 1990 (hereinafter called "the Act"), the Federal Government is empowered to issue a notification specifying the goods on which the tax shall be charged at such higher or lower rates as may be specified in the notification. In exercise of those powers, Federal Government had issued S.R.O. 389(I)/2001 dated 18‑6‑2001 in which more than 200 goods had been specified on which rate of sales tax was 20 %. The aforesaid notification 389(I)/2001 dated 18‑6‑2001 has been rescinded through S.R.O. 489(I)/2004 dated 12‑6‑2004 and all those goods which had been specified in the erstwhile notification S.R.O. 389(I)/2001 and were chargeable to tax @ 20% have now become liable` to sales tax @ 15 %. This measure has been given immediate effect. In terms of subsection (1A) of section 3 of the Act, where a taxable supply were made to a non‑registered person, the supplier was required to charge further tax @ 3% in addition to standard rate of 15 %. The goods specified in S. R.O. 389(I)/2001 dated 18‑6‑2001 were chargeable to tax @ 20% of the value, and in case such goods were supplied to non registered person, the supplier was required to charge 23 %. Subsection (1A) of section 3 has been omitted with immediate effect and further tax has been abolished. So all goods which were liable to tax a 20 % or are liable to tax at the standard rate of 15 % will be charge to tax at the standard rate of 15 % irrespective of the fact whether these are supplied to registered or non‑registered persons. In terms of section 3A of the Act, the following classes of manufacturer and retailers were liable to pay turnover tax @ 2% of the taxable turnover: Manufacturer or producer whose total turnover did not exceed 2 and half million rupees in any period during the last 12 months. Retailers whose total turnover did not exceed rupees 20 million in any period during the last 12 months. Section 3A has been omitted and the scheme of turnover tax has been abolished. ‑‑‑Corresponding amendment has also been made in the Sixth Schedule. Previously the supplies of such manufacturer were exempt from tax whose annual turnover from taxable supplies made in any tax period during the last 12 months ending any tax period did not exceed Rs.500,000. The aforesaid limit of Rs.500,000 has been enhanced to Rs.5,000,000. Now supplies of the manufacturer whose annual turnover taxable supplies made in any tax period during the last 12 months ending any tax period does not exceed Rs.5,000,000 are exempt from whole of sales tax and the manufacturer making taxable supplies over and above the aforesaid turnover of Rs.5 % Million are liable to pay sales tax @ 15 %. Previously the supplies of such retailers were exempt from tax whose annual turnover from supplies, whether taxable or otherwise, made in any tax period during the last 12 months ending any tax period did not exceed Rs.1,000,000. The aforesaid limit of Rs.1,000,000 has been enhanced to Rs.5,000,000. Now supplies of the retailers whose annual turnover supplies, whether taxable or otherwise, made in any tax period during the last 12 months ending any tax period does not exceed Rs.5,000,000 are exempt from whole of sales tax' and the retailers making supplies over and above the aforesaid turnover of Rs.5.0 Million are liable to pay sales tax @ 15 % on taxable supplies. Since further tax has been abolished, corresponding amendment has been made in section 7. Previously, the registered person whose input tax exceeded output tax was required to pay further tax in cash and was entitled to carry forward the balance amount of input tax. Since there is no further tax presently, the registered person is fully entitled to carry forward full amount of excess input tax and is not required to pay any amount in gash. A new subsection (2) has been introduced in section 7A which empowers the Federal Government has been empowered to notify the minimum value addition required to be declared by certain persons or categories of persons; for supply of goods of such description, or, class as may be prescribed, and to waive the requirement of audit or scrutiny of records if such minimum value addition is declared. In exercise of those powers, Federal Government has issued Rules contained in the Sales Tax Special Procedures Rules, 2004 issued vide S.R.O. 484(I)/2004 dated 12‑6‑2004. Chapter II (from rule 8 to rule 14) of the Rules pertains to Special Procedure for Payment of Sales Tax by Commercial Importers on Value Addition Annexure‑1. Chapter III (from rule 15 to rule 21) of the Rules pertains to Special Procedure for Payment of Retail Tax ‑ Annexure‑2. Section 8(1) of the Act provides that a registered person shall not be entitled to claim adjustment of input tax on goods used for any purpose other than taxable supplies and the goods specified by the Federal Government through a notification. In exercise of those powers, Federal Government had issued S. R. O. 578(I)/98 dated 12.06.1998 through, which 11 goods had been specified on which a registered person was not entitled to claim adjustment of input tax. These goods included vehicles, generators, building materials, diesel, etc. S.R.O. 578(I)/98 has been superceded through S.R.O. 490(I)/2004 dated 12‑6‑2004 and this measure has been yen immediate effect. In the new S.R.O. only the following 3 foods have been specified on which a registered person cannot claim adjustment/refund of input tax: (a) vehicles falling in chapter 87 of the First Schedule to the Customs Act, 1969 (IV of 1969); (b) food, beverages, garments, fabrics, etcetera and consumption on entertainment; and (c) gifts and give‑aways. Now the registered person can claim adjustment of input tax on building materials, generators, telecommunication equipment, electrical and gas appliances, wires and cables, ordinary electrical fittings and diesel on which adjustment was not allowed during the period when S.R.O. 578(I)/98 was operative. Two new clauses (c) and (d) have been added in section 8(1). Now the registered person will not be entitled to claim adjustment / refund of input tax paid on (c) fake invoices; and (d) purchases made by such registered person, in case he fails to furnish the information required by the Board through a notification issued under, subsection (5) of section 26. " In exercise of powers conferred under subsection (5) of 26 of the Act, Board has issued two notifications S.R.O. 508(I)/2004 and S.R.O. 509(I)/2004 both dated 12‑6-2004. Through S.R.O. 508(I)/2004, Board has required all registered person engaged in the manufacture or supply or export, of following goods to furnish a summary of their purchases and sales made during a tax period by the 15th of the month following the said tax period, to the Collector of Sales Tax having jurisdiction in the form as specified ‑ Annexure ‑ 3. (a) cotton yarn blended yarn or man‑made yarn; (b) textile fabrics of all kinds and descriptions; and (c) textile made ups including bed linen kitchen linen terry fabric goods and really made garments Through. S.R.O. 509(I)/2004, Board has required all commercial importers of polypropylene granules (tape yarn grade) falling under PCT Heading No. 3902.1000 of the First Schedule to the Customs Act, '1969 (IV of 1969) to furnish a summary of their purchases and sales made during a tax period by the 15th of the month following the said tax period, to the Collector of Sales Tax having jurisdiction, in the form, as specified Annexure ‑ 4. Through S R .O 510(I)/2004, Board has‑specified that the excess amount of tax carried forward by a registered person other than an exporter may be refunded if the amount carried forward is not adjusted within a 'period of six months from the period‑ in which it first arose. Collector of Sales Tax has been empowered to blacklist a registered person or suspend his registration if he is satisfied that the registered person has issued fake invoice, evaded tax or has committed tax fraud. A new section 38A has been‑inserted which empowers the Collector to require any person including a banking company to furnish such information or such statement in connection with any investigation or inquiry in cases of tax fraud as may be specified in the notice. Section 73 has been substituted. In terms of new provisions, a registered buyer is required to make payment of any amount exceeding Rs.50,000 through a crossed cheque or crossed draft crossed pay order or any other banking instrument showing transfer of amount of sales tax invoice in favour of supplier from the business bank account of the buyer. In case of credit transactions, the payment is to be transferred in 180 days. For the purpose of this section., the term "business bank account" shall mean a bank account utilized by the registered person for business transactions, declared to the' Collector in whose jurisdiction he is 're registered. Exemption of sales tax on supply of cotton seed used , in the manufacture of cotton seed oil has been withdrawn with immediate effect. Exemption of sales tax on supply of locally produced crude vegetable oil obtained from locally produced cotton seed has been withdrawn with immediate effect. Excise dues @ 15% has been levied on import and supply of edible oil, vegetable ghee and cooking oil which will be collected as if it were a sales tax. This measure has been given immediate effect. Such edible oils, vegetable ghee and cooking oil will not be subjected to sales tax. The facility of input tax credit adjustment will remain available to persons receiving supply of these goods. Although these goods are liable to excise duty and not sales tax, but proper amendments have been made in Central Excise Rules, so manufacturer of these goods will not be liable to get central excise license. Supply of tractors, bulldozers and combined harvesters has been given blanket exemption irrespective of the fact whether or not these are used for a agricultural purposes. Exemption of sales tax on cattle feed has been withdrawn. The Federal Government has notified the following goods which cannot be supplied to an un‑registered person. In case a registered person make supply of these goods to unregistered person's, he will not be entitled to claim input adjustment. (a) polypropylene granules (tape yarn grade falling under PCT heading 3902.1000); (b) filter rods for, cigarettes (PCT heading 5502.0090); (c) taxable goods mentioned in the table below (excluding those sold in retail to ultimate consumers or persons whose income is not liable to income tax under the. Income Tax Ordinance, 2001 (XLIX of 2001) but deduct income tax at source under the said Ordinance or Government organizations not liable to registration under the Sales Tax Act, 1990), manufactured or produced by consuming raw materials, parts, sub‑components and components imported and cleared against bills of entry or goods declaration filed on the 5" September, 2003 or thereafter, under various concessionary notifications issued under section 19 of the Customs Act, 1969 (IV of 1969), or under section 13 of the Sales Tax Act, 1990. TABLE S.NO. NAME OF ITEMS 1 Air‑conditioning, chilling plants and humidification plant. 2 Cranes. 3 Propane storage tank, heat exchanger and gas separator. Through SRO 494(I)/2004, the Federal Government has fixed the value of phosphoric acid imported by phosphatic fertilizer industry for the manufacture of phosphatic fertilizer for the purpose of assessment .of sales tax at import stage at Rs.7000 per MT. Through S.R.O. 987(I)/90, the Federal Government had granted exemption of sales tax on plant and machinery subject to certain conditions including that the importer or purchaser of locally manufactured machinery shall furnish indemnity bond which would be released on submission of installation cum production certificate within. 2 years: The said notification has been rescinded through S. R. O. 487(I)/2004. A new S.R.O. 500(I)/2004 has been issued through which it has been specified that the imported plant and machined and supply of locally manufactured plant and machinery will be charged to tax at the rate of zero percent. Supply of hides and skins, raw wool and oil cake has also been zero rated through S.R.O. 500(I)/2004. Supply, of cotton has also been zero rated through S. R. O. 500(I)/2004 subject to the procedure prescribed in Chapter VII of the Sales Tax Special Procedure Rules, 2004 which has been given immediate effect. Chapter VII (from rule 45 to rule 54) is as Annexure ‑ 5. Through S.R.O. 501(I)/2004 dated 12.06.2004, CBR has fixed the value of supply 'for cotton seed at Rs.330 and for oil dirt at Rs.220 per 40 Kg. 2. This information is being passed on to you as part of our regular dissemination programme in lieu of the monthly Retainership. Annexure ‑ 1 CHAPTER II SPECIAL PROCEDURE FOR PAYMENT OF SALES TAX BY COMMERCIAL IMPORTERS ON VALUE ADDITION 8. Application.‑The provisions of this Chapter shall apply to perms registered exclusively as commercial importers under the Act, 9. Definitions. ‑‑(1) In this Chapter, unless there is anything repugnant in the subject or context,‑ (a) "Act" means the Sales Tax Act, 1990; (b) "Annex" means an Annex to this Chapter; (c) "challan" means the payment challan specified in Annex `A' to this Chapter; (d) "commercial importer" means a person registered as , a commercial importer under the Act; (e) "assessed import value" means the value of imported goods determined under section 25 or 25B of the Customs Act, 1969 (IV Of 1969), including the amount of customs duties and central excise duty; if any, levied thereon; (f) "return" means the return‑cum‑payment challan specified in Annex `B' to this Chapter; (g) "statement" means the summary statement in the form specified in Annex `C.' to this Chapter; (h) "value addition" means the difference between the assessed import value and the value of supply for which the goods, in the same state, are supplied, expressed as a percentage over the assessed import value, and calculated in the manner specified in rule 10; and‑ (i) "year" means a period of twelve continuous months. (2) The words and expressions used but not defined herein shall have the same meaning as assign d to them in the Act: 10. Payment of Sales Tax on value addition.‑‑‑(1) A commercial importer shall pay sales tax on supplies of imported goods, at the rate specified in subsection (1) of section 3 of‑the Act, on a value addition of not less than fourteen per cent, through a challan in triplicate, at the same time as making payment of customs duty and sales tax in the bill of entry for such imported goods, calculated as shown in the Example. Provided that in case the value addition of such commercial importer during any period in the preceding year was higher than fourteen per cent, he shall pay sales tax on supplies of imported goods on such higher value addition, in the manner specified in this sub‑rule. EXAMPLE (a) Value of imported goods determined = Rs. 100.00 under section 25 or 25B of the Customs Act, 1969 (b) Customs duty (@ 20% ) = Rs. 20.00 (c) Assessed import value (= a + b ) = Rs. 120.00 (d) Sales tax ( @ 15% ) payable on bill of = Rs. 18.00 entry (e) Value of supplies, with value addition = Rs. 136.80 of 14%[=c+(cx14 100)] (f) Value addition on which sales tax , is = Rs. 16.80 payable( = e ‑ c ) (g) Sales tax on value addition (= f x 15. = Rs. 2.52 100 ) (payable on treasury challan) (2) The Bank shall send the original copy of the challan to the Collector of Sales Tax having jurisdiction, retain the duplicate copy for its record, and return the triplicate copy to the commercial importer, duly signed and stamped as acknowledgment of payment of the amount indicated. 11. Invoices and records.‑‑‑A commercial importer shall issue a tax invoice for every supply made, by him in the manner prescribed in section 23 of the Act and shall maintain records as prescribed under the Act. 12. Filing of Return.‑‑‑‑A commercial importer shall file sales tax return for a tax period in the form prescribed in Annex `B'. 13. Statement of value addition.‑‑‑A commercial importer shall furnish to the Collector, by the 15th day of the month following the completion of every year of working under these rules, a statement in the form at Annex 'C', after payment of the balance amount of tax, if any, payable on value addition for the year, calculated in manner specified in the statement. 14. Exemption from audit.‑‑‑A commercial importer who pays sales tax on value addition basis as prescribed under these rules for a year shall not be subjected to any audit for that year, and detailed audit shall be conducted of a commercial importer who pays sales tax in any manner other than prescribed in these rules. Annexure ‑ 2 CHAPTER III SPECIAL PROCEDURE FOR PAYMENT OF RETAIL TAX 15. Application.‑‑‑The provisions of this Chapter shall apply to persons registered exclusively as retailers under the Act. 16. Definitions.‑‑‑(1) In this Chapter, unless there is anything repugnant in the subject or context,‑ (a) "Act" means the Sales Tax Act, 1990; (b) "Annex" means an Annex appended to these rules; (c) "application" means application for registration as a taxpayer for retail tax as specified in Form S.T.‑1 annexed to Chapter I of the Sales Tax Rules, 2004; (d) "return" means retail tax return‑cum‑payment challan as specified in Annex `A'; and (e) "value addition" means difference between the value of supply for which the goods are acquired and the value of supply for which the goods are supplied, where for a particular tax period ‑ (i) the value of supply for which the goods are supplied shall be the sum of the values of all the sales made by the retailer during the tax period; and (ii) the value of supply for which the goods are acquired shall be the sum of the values indicated in all the invoices, bills, vouchers, cash payment slips and cash memos of goods purchased by the retailer in the tax period. (2) All other terms and expressions used but not defined herein shall have the same meaning as assigned to them in the Act. 17. Registration of retailer.‑‑(1) Every person liable to be registered as a retailer shall, if not already registered, make an application for registration to the Collector having jurisdiction in the area where his business premises are located, in the manner prescribed in Chapter I of the Sales Tax Rules, 2004. (2) In case a retailer operates different branches, divisions or retail outlets at more than one place, he shall apply for registration to the Collector having jurisdiction over the place where the head office is located. (3) The Collector shall, having satisfied himself with the requisite information provided in the application for registration, register the applicant as retailer and issue registration certificate accordingly. 18. Furnishing of returns and payment of retail tax.‑‑‑(1) A retailer shall deposit the return for a tax period in a designated branch of the National Bank of Pakistan for the tax period in the manner specified in section 26AA of the Act and Chapter 11 of the Sales Tax Rules, 2004 made thereunder. 19. Determination of sales tax liability.‑‑‑Supplies made during a tax period by a retailer shall be charged to tax at the rate specified under subsection (1) of section 3 of the Act on the basis of the value addition: Provided that the value addition, in percentage terms, shall not be less than fifteen per cent of the total value of purchases made during the said tax period. 20. Record keeping and invoicing:‑(1) A retailer shall issue cash memo for each supply in the form as set out at Annex `B' and shall maintain the following records, namely:‑ (a) record of purchases indicating description, quantity and value of goods purchased arid the name and address of, the seller; and (b) record of sales indicating description, quantity arid value of goods sold. 21. Audit.‑‑‑(1) Audit of the records for verification of minimum value addition and correct payment of sales tax on monthly basis shall be conducted once in a year. (2) Notwithstanding the provisions of sub‑rule (1), a retailer who declares a minimum increase of six per cent in his total sales in a year over the sales declared in the preceding year, shall not be subjected‑ to routine audit. (3) Notwithstanding the provisions of sub‑rule (2), if the Collector has reasons to believe that the retailer has committed a tax fraud or violated any of the provisions of these rules, he may order for audit of the retailer. Annexure 3 SUMMARY STATEMENT UNDER SECTION 26(5) OF THE SALES TAX ACT, 1990 Name ________________________________________ Sales Tax Registration Number _____________________ Tax period __________________ SUMMARY OF PURCHASE INVOICES S. No. Sales Tax Registration No. of Supplier (if any) Name (and, in case of Unregistered suppliers, complete Address) of Supplier Number of Purchases/ Invoices received Sales Tax Involved (1) (2) (3) (4) (5) SUMMARY OF SALE INVOICES S. No. Sales Tax Registration No. Of Buyer (if any) Name (and, in case of unregistered buyers, complete Address) of buyer No of invoices issued Sales Tax Involved (1) (2) (3) (4) (5) Person __________________________________________________ Name and NIC No. ________________________________________ Date ___________________________________________________ Stamp __________________________________________________ Annexure ‑ 4 SUMMARY STATEMENT UNDER SECTION 26(5) OF THE SALES TAX ACT, 1990 Name _________________________________________________ Sales Tax Registration Number. _____________________________ Tax period __________________________ S. No. Sales Tax Registration No. Of Buyer (if any) National Tax No. of buyer Name (and, in case of unregistered buyers, complete Address) of buyer No of invoices issued Sales Tax Involved (1) (2) (3) (4) (5) (6) Annexure 5 CHAPTER VII SPECIAL PROCEDURE FOR SUPPLY OF GINNED COTTON 45. Application.‑‑‑The provisions of this Chapter shall apply to cotton ginners, ginning units, and persons involved in the purchase, supply and export of ginned cotton. 46. Definitions.‑‑‑For the purposes of this Chapter,‑ (a) "Act" means the Sales Tax Act, 1990; (b) "ginning" means the process of manufacture of ginned cotton; (c) "ginning unit" means any factory or manufacturing unit engaged in ginning and pressing of cotton; and (d) "ginner" means a person who is engaged in the manufacture and supply of ginned cotton. 47. Registration.‑‑‑(1) A ginner shall, if not already registered under the. Act, apply for registration under section 14 of Act read with Chapter I of the Sales Tax Rules, 2004, to the Collector having jurisdiction in the area where the ginning unit is situated. (2) Where a ginner is operating more than one ginning units or a composite unit dealing in ginning and spinning together or is engaged in any other taxable activity, whether ginning or other taxable activities are carried out in the, same premises or not, such ginner shall apply for registration separately in accordance with sub‑rule (1) for each ginning unit and separately for other taxable activity. 48. Notice to be given by ginner.‑‑‑A ginner shall notify the Collector in writing about the commencement and cessation of ginning, one day prior to such commencement, or as the case may be, cessation. 49. Tax rate.‑‑--Supply of ginned cotton shall be zero‑rated subject to the procedure specified in rules 50 and 51 of these rules. 50. Tax invoice and returns.---‑‑Subject to the procedure specified in these rules; a ginner or any other person making supply of ginned cotton shall issue a tax invoice under section 23 of the Act for each supply of taxable goods, indicating all the particulars specified in the said section, including the full name and complete address of the buyer, registration number of the buyer, if any, the quantity and value of supply, and the rate and amount of tax involved, if any, on such supply. 51. Manner of supply of ginned cotton.‑‑‑(1) The ginner shall deliver ginned cotton against a serially numbered delivery note or gate pass to the buyer, indicating the quantity of ginned cotton sold, the full name and complete address of the buyer and his registration number. (2) The buyer shall, after receipt of the ginned cotton, settle the terms about the quantity and value of ginned cotton with the ginner within six days of the date of dispatch of ginned cotton from the ginning unit, and indicate the changes in the quantity and value (if any), on the reverse side of copies of the delivery note or gate pass issued by the ginner. (3) The ginner shall then, within seven days, issue the prescribed zero‑rated sales tax invoice for the quantity and value of the ginned cotton agreed between the ginner and the buyer, which shall be issued bearing the date on which the ginned cotton was dispatched against the delivery note or gate pass and shall bear a cross reference to the said delivery note or gate pass. (4) The ginner shall maintain proper record of all such supplies made and shall furnish the details of all supplies of cotton made by him during a month to the Collector, in the format given below, by the 15th day of the month succeeding the month in which the supplies were made:‑ STATEMENT OF SUPPLY OF GINNED COTTON Name of Ginner ___________________________________ Address _____________________________________________ Registration No. ____________________________________ Month______________________________________________ S. No. Invoice number and date Name of buyer and his registration No. (if any) Complete address of buyer Quantity of supply Value of Supply (1) (2) (3) (4) (5) 6) (5) Supply of ginned cotton made by a person other than a ginner shall be made in the same manner as specified in sub‑rule (1) to (4), and all the provisions of this Chapter shall be applicable to such person mutatis mutandis. 52. Maintenance of records.‑‑‑A ginner shall maintain the records specified in the Act and the Rules made thereunder. 53. Adjustment out tax.‑‑‑A person making zero‑rated supplies of ginned cotton may claim adjustment of input tax on his taxable purchases in accordance with provisions of sections 7 and 8 of the Act, and in case the input tax exceeds the output tax, he may claim refund in terms of section 10 of the Act and Chapter V of the Sales Tax Rules, 2004. 54. Effect of failure to observe this special procedure.-----(1) In case any supply of ginned cotton is made in a manner other than as specified in this Chapter, sales tax shall be chargeable thereon at the rate specified in subsection (1) of section 3 of the Act. (2) In case any goods are not accounted for by a person making supplies of ginned cotton, he shall be liable to pay sales tax thereon at the rate specified in subsection (1) of section 3 of the Act, along with additional tax and penalty under the Act.