Sales Tax Pesentation

BUDGET PROPOSALS (2009-10)
SALES TAX
IMRAN AFZAL - FCA

PROPOSED AMENDMENTS IN
SALES TAX LAW

Sales Tax Rate Reduction
Proposal
 The Government to bring down the

prevailing rate of GST from 16 percent to
12 percent.
 the present rates of sales tax of 21
percent, 18.5 percent, 16 percent be
merged into a single rate of sales tax.
Definition and implications
of tax fraud
Issue
 Supplies made without or during the
period in which registration is pending.
Proposal
 Immediate provisional sales tax
registration.
Value of supply
Issue
 In terms of Federal Excise Notification 655(I)/2007 dated 29 June 2007,

Special Excise Duty (SED) is not taken into account for the purpose of
computing “value of supply” under Sales Tax Act 1990. This exemption is
incorrectly placed in Federal Excise Law instead of Sales Tax and thus lacks
due intended legal support.
Proposal
 It is suggested that section 2(46)(a) of Sales Tax Act 1990 should be modified
as follows:
– “value of supply” means;- in respect of taxable supply, the consideration in money

including all Federal and Provincial duties except special excise duty levied under
section 3A of Federal Excise Act 2005 and taxes, if any, which the supplier receives
from the recipient for that supply excluding the amount of tax”.
Wholesaler
Issue
 ‘wholesaler’ includes a dealer and means any person who carries on, whether
regularly or otherwise, the business of buying and selling goods by wholesale
or of supplying or distributing goods, directly or indirectly, by wholesale for
cash or deferred payment or for commission or other valuable consideration
or stores such goods belonging to others as an agent for the purpose of sale;
and includes a person supplying taxable goods to a person who deducts
income tax at source under the Income Tax Ordinance, 2001 (XLIX of 2001) .
Proposal
 It is suggested that section 2(47) of Sales Tax Act 1990 should be modified as
follows:
“Wholesaler” means any person who carries on, whether regularly or otherwise the
business of buying and selling goods by wholesale or supplying or distributing
goods, directly or indirectly, by wholesale for cash or deferred payment or other
valuable consideration”.
The principle of 'joint and
several liability' in Section
8A
Proposal
 This section should be deleted as this

is against the principles of natural
justice where a person can be
punished for an offence not committed
by him.
Adjustable Input Tax
Proposal
 Section 8B of sales tax should be

abolished which restricts:
– input claim upto 90% of the output and;
– claim of sales tax on fixed assets in 12
equal monthly installments.
Debit/ Credit Note
Issue
 The Sales Tax Rules issued vide SRO 555(I)/2006

dated. 5th June, 2006 specifies the time limit of
180 days for issuance of debit and credit notes.
Proposal
 There should be no time limit for issuance of

debit/credit note as the taxpayers have already
approved and accounted for the transaction.
De-Registration
Issue
 When registration of a taxpayer is suspended due

to any reason, its effect is retrospective, i.e. from
the date of registration, the buyers of such
blacklisted supplier are severely affected.
Proposal
 Black listing or suspension should only be through

an order in original with prospective effect.
Sales Tax Audits
Issues
 Multiple audits of same tax period under different names,

– i.e., investigative audit,
– desk audit,
– audit by DRRA
– audit for abnormal profile, etc. Under section 25, the tax department may
conduct audit of registered person only once a year. Also, the terms
‘Desk Audit’, ‘Investigative Audit’ ‘Abnormal Tax Profile’ have not been
defined in the statute.
Proposal
 Audit by whatever name should only be conducted once a year in

compliance with sub section 2 of section 25.
 Deletion of second proviso to sub section 2 of section 25.
Revision of Special Sales
Tax Returns
Issue
 There is no mechanism for revision under

section 26 of the Act for special return.
Proposal
 Reference of section 27 may also be

incorporated in section 26(3) of the Act.
Conflict in Section 45B
and Rule 71
Issues
 Section 48 read with Rule 71 empower initiation of recovery

proceedings at the end of 30 days from the date of order
 Section 45B allows the taxpayer to file an appeal with the

Office of Collector (Appeals) within 30 days from the date of
receipt of order.
Proposal
 Recovery Rules may be amended and recovery proceedings

may only be enforced after 30 days of service of order to the
taxpayer.
Refund - Section 66
Proposal
 Withdraw time limit of one year.

Matching Interest Rate
for Delayed Refunds
Issues
 Default surcharge rate for delayed payment of sales tax

liability is 18% p.a.
 Delayed payments of due tax refunds costs 6% p.a to the

department
Proposal
 Interest on delayed refund should be the same as default

surcharge i.e. 18% p.a.
Section 73 and ground
realities
Issues
 Section 73 does not deal with the following

situations
– Adjustments or receivable and payables between buyer
and sellers
– payments by third parties, like guarantors etc.
Proposal
 Section 73 may be amended to cater the above

stated issues
Apportionment Of Input
Tax On Exports
Issues
 Tax attributed to exports and zero rated supplies is refundable

to the registered person. However, the law does not prescribe
any formula / method of proration of input tax between
exports and local supplies.
Proposal
 A formula / mechanism identical to the ‘Apportionment of

Input Tax Rules’ (taxable and exempt supplies) should be
introduced in the statute.
Sales Tax Refund
Issue
 Huge refunds lying with the department
 Liquidity issues to general public
 Refunds not replicated over STARR, the department desires the refund
claimant to:
– comply with Standing Order 2 of 2007 which requires (buyer) to furnish

seller’s returns, accounts, statements, summaries.
 Suppliers declines to share / furnish their returns, summaries and other

statutory declarations
 onus of verification is transferred upon the refund claimant
Proposal
 Refund claimant should only be required to provide documents in his
control. Department should initiate proceedings against the defaulting
supplier separately.
Thank You

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BUDGET PROPOSALS (2009-10)

IMRAN AFZAL - FCA

SALES TAX LAW

 The Government to bring down the

 In terms of Federal Excise Notification 655(I)/2007 dated 29 June 2007,

– “value of supply” means;- in respect of taxable supply, the consideration in money

 This section should be deleted as this

 Section 8B of sales tax should be

 The Sales Tax Rules issued vide SRO 555(I)/2006

 There should be no time limit for issuance of

 When registration of a taxpayer is suspended due

 Black listing or suspension should only be through

 Multiple audits of same tax period under different names,

 Audit by whatever name should only be conducted once a year in

 There is no mechanism for revision under

 Reference of section 27 may also be

 Section 48 read with Rule 71 empower initiation of recovery

 Section 45B allows the taxpayer to file an appeal with the

 Recovery Rules may be amended and recovery proceedings

 Withdraw time limit of one year.

 Default surcharge rate for delayed payment of sales tax

 Delayed payments of due tax refunds costs 6% p.a to the

 Interest on delayed refund should be the same as default

 Section 73 does not deal with the following

 Section 73 may be amended to cater the above

 Tax attributed to exports and zero rated supplies is refundable

 A formula / mechanism identical to the ‘Apportionment of

– comply with Standing Order 2 of 2007 which requires (buyer) to furnish

 Suppliers declines to share / furnish their returns, summaries and other

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