Most wholesalers stop filing sales tax, FED returns

RECORDER REPORT

ISLAMABAD: Most of the wholesalers have stopped filing of sales tax and federal excise returns and deliberately making attempts to change their category/tax status on issuance of SRO 564(I)/2012, which has disallowed input tax in excess of 90 percent of their output tax.

Sources told Business Recorder here on Saturday that the SRO564(I)/2012 has included ‘wholesalers’ into the categories of taxpayers, who are not allowed to adjust input tax in excess of 90 percent of their output tax. This restriction has been imposed on the ‘wholesalers’ through issuance of the said SRO. Resultantly, a large number of wholesalers have stopped filing of their sales tax returns for tax period of June 2012. The date for filing of sales tax returns was repeatedly extended for the tax period of June. Despite, such extensions in filing of returns, wholesalers were more interested in changing their tax status instead of filing sales tax returns.

At the same time, the wholesalers have also applied to the FBR for change in their status to service providers, retailers, wholesalers-cum-retailers to avoid payment of input tax. Under SRO 564(I)/2012, amendment has been made in SRO 647(I)/2007 dated 27th June, 2007 to exclude “wholesalers” from the said SRO.

According to sources, most of the wholesalers have requested the FBR to change their tax status due to the provisions of the SRO 564(I)/2012. However, this requires a policy decision by the FBR to allow all wholesalers to change their tax status to other categories of taxpayers. Following issuance of SRO 564(I)/2012, the category of the wholesalers has been added in the list of activities not allowed to adjust input tax in excess of 90 percent of their output tax for the period since issuance of the said notification.

Previously, 100 percent adjustment of input tax was allowed. Now, the wholesalers have been allowed to adjust only 90 percent input tax and provisions of section 8B of the Sales Tax Act 1990 would also be applicable on the wholesalers. Under section 8B of the Act, a registered person shall not be allowed to adjust input tax in excess of 90 percent of the output tax for that tax period.

Resultantly, all registered persons falling within the category of the ‘wholesalers’ have approached the Board to change their business title activities to avoid fulfillment of the conditions of the said SRO.

The change of status of their business category would avoid application of the provisions of the SRO 564(I)/2012 on the wholesalers’ community. Due to amendment in the SRO 647(I)/2007 through issuance of SRO 564(I)/2012, most of the registered persons have applied for change in their tax status. If all ‘wholesalers’ would change their tax status to service providers, retailers and wholesalers-cum-retailers etc, this might have negative implications on the revenue as well as overall tax compliance in the ‘wholesale sector of the business community.

SRO.564(I)/2012 says, “in exercise of the powers conferred by the second proviso to sub-section (1) of section 8B of the Sales Tax Act, 1990, the Federal Board of Revenue is pleased to direct that the following amendment shall be made in its Notification No.SRO.647(I)/2007, dated June 27, 2007, namely. In the aforesaid Notification, in the Table, in column (1), against S. No.8, the words “and wholesalers” shall be omitted.