BUDGET PROPOSALS ON SALES TAX ACT, 1990 FINANCIAL YEAR 2006-2007

BUDGET PROPOSALS ON SALES TAX ACT, 1990 <!--[if gte mso 10]> BUDGET PROPOSALS ON SALES TAX ACT, 1990 FINANCIAL YEAR 2006-2007 By Shaukat Baluch, F. C.M.A., Ex Secretary General Rawalpindi-Islamabad Tax Bar Association SECTION 3 (SCOPE OF TAX) The rate of sales tax is too high. It is proposed that it may be reduced to 12% as against present rate of 15%. Present subsection (2)(a) of section 3 may be omitted and new subsection may be inserted to charge turnover sales tax at the rate of 1 on every retailer of any line of business and without any limit or threshold. Every retailer who is filing income tax return should be liable to this tax. For this purpose new rules and procedure may be framed. Presently retailers whose annual turnover is above 5 Million are liable to sales tax and amongst them value addition is at different rates for different lines of business. This creates problems for taxpayers because mostly retailers are not doing business in one . item, they are doing business in different items, and some of them are Schedule 111 items some with different profit or value addition margin. Therefore, to provide even playground to all retailers, it is proposed that turnover sales tax at the rate of 1% may be levied on all retailers. The C.B.R. may also ensure constancy in this policy for at least for 5 years and thereafter they may be switched over to normal sales tax regime. SECTION 3AA (RETAIL TAX) The heading of this section may be amended from "Retail Tax" to "Turnover Sales Tax on Retailers". Besides suitable amendment in this section the retail tax rules may be amended to streamline procedure in this regard. Every retailer shall include 1% sales tax in his retail price i.e. his declared turnover shall include his profit margin plus 1% sales tax. Every month he in his return shall declare his purchases and sale value, gross profit margin 'and sales tax (to be paid). The retailers for this purpose need not to be separately registered, their NTN with addition of sales tax code number be their sales tax registration No. Also make a corresponding provision in the Income Tax Return to counter-check that sales tax is being paid and in case of failure it shall he recovered with penalties and default surcharge. SECTION 10 (EXCESS AMOUNT TO BE REFUNDED) The provision of carry forward of input tax not adjusted in the tax period has been omitted through Finance Act, 2005. Resultantly the taxpayers are facing much hardships in this regard. This is pertinent to note that the exporters which are a few in numbers as compared to other registered persons, the department failed to settle their refund claims and to get rid of their refunds all major export-oriented industries have been brought to zero rate. But on the other hand all other hundreds of thousand taxpayers have been brought into refund circle. The law should be to facilitate and people and not to create problems. Therefore, it is strongly proposed that the provision of carry forward may again the restored, however, the period of carry forward may be reduced to six months instead of twelve months. SECTION 21 (DE-REGISTRATION, BLACKLISTING AND SUSPEN SION OF REGISTRATION) The section does not provide any opportunity of explaining the viewpoint of the taxpayer. The Collector has been given discretionary powers in this regard. It is, therefore, proposed that a provision may be made under this section to provide hearing opportunity to the taxpayer before taking any action under section 21. SECTION 22 (RECORDS) A provision for maintaining compulsory cost accounting record for every industrial and production unit may be made in section 22, so that their input and output tax could be analyzed on professional lines. SECTION 33 (OFFENCES AND PENALTIES) The offences and penalties provided in section 33 need to be reviewed. This is very unfortunate that all these penalties except one for "Failure to make an application for registration----", which are too harsh in nature, are for the registered person. Therefore, it is proposed that the entire penalties may be reviewed to show a friendly gesture, to much feared and frustrated taxpayers of sales tax. SECTION 36 (RECOVERY OF TAX NOT LEVIED OR SHORT-LEVIED OR ERRONEOUSLY REFUNDED) A notice to show cause under section 36(1) for recovery of tax not levied or short-levied or erroneously refunded can be issued within five years of the relevant date. This period of 5 years is against the provisions of section 24, where the period of retention of record and documents has been reduced to three years. The period of 5 years may be reduced to 3 years. SECTION 47A (ALTERNATE DISPUTE RESOLUTION) It is proposed that in ease the taxpayer submits application for ADR, provision for stay of proceedings under any other provision of Sales Tax Act, may be made till the case is decided by the C.B.R. SALES TAX RETURN FORMS Sales Tax Return forms are not only being complicated day by day but also are very rapidly subject to changes. Now the situation is that even department is not sure about the return form. It is therefore, proposed that after due deliberation with stakeholders and tax bars the return form may be standardized. The filing of Nil Returns with the Collectorate, as provided in Chapter-I of Sales Tax Special Procedures Rules, 2005 may be made optional and bank may also be authorized to receive the Nil Returns. The banks taking the benefit of receipt provisions by Collectorate refuse to receive the Nil Returns. This creates hardships to taxpayers specially those who are away from the Collectorate. REGISTRATION AND DE-REGISTRATION RULES Although positive changes in rules in this regard have been introduced, yet there still exists room for improvements. The registration process may be framed in line with NTN obtaining procedure. SALES TAX ON UTILITY BILLS It is strongly proposed that sales tax on industrial and commercial utility bills be charged at zero rate. This will create a positive impact on the economy and shall cause in reduction in the cost of production/sold, resultantly the people who are end consumers shall get some relief.