Unregistered persons: withholding ST rate on purchases cut from 17 percent to 1 percent
The government has decided to reduce withholding sales tax rate on purchases from unregistered persons from 17 to 1 percent, exclude items chargeable to sales tax on retail prices and commercial importers from sales tax withholding regime and withdrawn condition of seeking computerised national identity card numbers (CNICs), National Tax Numbers (NTNs) and addresses of un-registered retailers.
Copyright Business Recorder, 2013
The decision to this effect was taken by Finance Minister Ishaq Dar after a meeting with Secretary Finance Dr Waqar Masood, Chairman Federal Board of Revenue (FBR) Tariq Bajwa and senior officials of Finance Minister on Saturday. Director General Media Shafqat Jalil told Business Recorder that the meeting continued till late night on Saturday to review various concerns expressed by the business community regarding procedural and tax anomalies. He said that the Finance Minister held telephonic discussions with business community before taking the decision. He said that the detailed consultations were also held by the Finance Minister during the previous meeting with various stakeholders and representatives of the business community on the issues of withholding sale tax rate.
According to a statement, during the meeting it was decided that rate of withholding sales tax on purchases from unregistered persons has been reduced from 17 to 1 percent, which will not be adjustable. Items added in the Third Schedule to the Sales Tax Act 1990 vide Finance Bill 2013 (except for Fertiliser and Cement) have been omitted from the Third Schedule and subjected to 2 per cent extra tax in lieu of sales tax at retail stage.
The meeting also decided that the items chargeable to sales tax on retail prices have been exempted from sales tax withholding regime, rate of withholding for wholesalers, dealers (including petroleum dealers) and distributors is reduced from current level of one-fifth (ie 3.4 percent) to one-tenth (ie 1.7 percent) of the applicable rate of sales tax and commercial importers who are subject to withholding on income tax have been excluded from sales tax withholding regime. The restriction imposed under (x) of SRO 1125(I)/2011 dated 2011 on refunds against local supplies has been done away with to allow refunds (after pre-refund scrutiny) as admissible under the relevant law and rate of withholding tax on goods transport vehicles under Section 234 of the Income Tax Ordinance, 2001 is reduced from Rs5 per kg of the laden weight to Rs3 per kg, the condition of provision of Computerised National Identity Card Number (CNIC), National Tax Number(NTN) and addresses of retailers under section 236H to be provided in the withholding statement under Section 165 of the Income Tax Ordinance ,2001 is waived and sales tax on fabrics has been reduced from 5 to 3 percent.
The Finance Minister said that the government has taken these decisions to accommodate the demands of the business community despite the difficult financial situation. The above-measures would provide relief, remove procedural anomalies and demonstrate the business friendly approach of the government of Prime Minister Mohammad Nawaz Sharif. He said that this reflects the importance and role that the government attaches to trade and industry in the country and their key role in its effort to revive the economy.
When contacted, officials explained that the government has withdrawn a major documentation measure of Finance Act, 2013 by not seeking Computerised National Identity Card numbers or National Tax Numbers of the unregistered retailers and others under section 236-H of the Income Tax Ordinance 2001. The taxation measure under 236-G and 236-H requires CNIC or other particulars for deposit of tax payment. Business and trade had repeatedly informed the FBR that as it is simply not possible for them to collect particulars of their buyers therefore this exercise had remained non practicable in the past. People are ready to pay tax hence if a provision of free tax number be provided, they will discharge their tax liability without going into the requirement of CNIC and NTN or otherwise government would not able to even collect tax on this account.
It has been decided that the FBR will abolish the condition of seeking CNICs on sale to the un-registered retailers under Section 236-H of the Income Tax Ordinance 2001.
Through Finance Act,2013 a new Section 236G was introduced which requires collection of advance income tax by every manufacturer distributor, dealer, wholesaler or commercial importer of electronics, sugar, cement, iron and steel products, fertiliser, motor cycles, pesticides, cigarettes, glass, textile, beverages, paint or foam sector. The tax shall be collected from retailers at the time of sale of the above goods/products. The rate of tax is prescribed at 0.5 percent of the gross amount of the sale which shall be adjustable in the hands of the retailers on the taxable income for the tax year in which the tax was collected.
Moreover, to ensure effective audit and investigation, Section 22 of the Sales Tax Act, 1990 was amended through Finance Act, 2013 to add the requirement of maintaining gate passes record and transport receipts. Responding this, business and trade opined that the gate passes, inward/ outward and transport record was made mandatory to be retained for up to six years. Such record keeping was required in Excise ERA where no electronic means and computerisation was available. Now in this age, when each and every transaction is verifiable electronically on real time basis, such additional requirement is only to create hardship and unnecessary complication. A taxpayer having multiple premises may issue different gate passes. However he may issue a single sales tax invoice on single total accumulative delivery. Furthermore sales tax invoice is required to be issued at the time of payment or delivery whichever is earlier whereas gate pass is even required to be issued where there is no sales and goods were only sent for some sampling or other process done by other vendors, hence suggestion to use sales tax invoice as gate pass is not practicable.
Keeping in view the practical difficulties of the business community, the FBR will issue ''administrative instructions'' to the field formations to suspend the applicability of the section 22 of the Sales Tax Act, 1990 pertaining to the requirement of maintaining gate passes record and transport receipts.
So far, the FBR is resisting the demand of the business and trade that enhanced rate of one percent sales tax from 16 to 17 percent should not be charged during the period of June 21-30, 2013, sources said.
The FBR will amend the Sales Tax Special Procedure Rules to exclude commercial importers and retail price items from the purview of withholding of sales tax regime. In this regard, the FBR will introduce amendments in the Sales Tax Special Procedure. The commercial importers and retail price items would be excluded from the sales tax withholding. As a result of these amendments, the supplies of commercial importers and items specified in the Third Schedule of the Sales Tax Act, 1990 would be excluded from the sales tax withholding regime and they would not be required to withhold one fifth amount of the sales tax under Sales Tax Special Procedure Rules.
The Board will allow one percent sales tax withholding on purchases from unregistered persons instead of existing 17 percent under SRO 505(I)/2013. The SRO was introduced in budget (2013-14) to expand scope of withholding regime by making all withholding agents responsible to withhold whole of sales tax on purchases from unregistered persons. Through amendments in the SRO 505(I)/2013, the withholding of sales tax would be allowed at the rate of one percent as compared to applicable rate of 17 percent. In this regard, the FBR will introduce amendment in SRO 505(I)/2013 issued in budget (2013-14), they added.