Input tax adjustment: Controversial SRO to be retained

SOHAIL SARFRAZ

ISLAMABAD: The Federal Board of Revenue has decided to retain the SRO 191(I)/2012 and amend the notification during current month to limit disallowance of input tax adjustment under the revised scheme of documentation of unregistered buyers.

Sources told Business Recorder here on Monday that the SRO191 is still in abeyance and sales tax returns to be filed in June 2012 would not carry basic particulars of their unregistered buyers. The FBR had suspended the applicability of SRO191(I)/2011 up to May 31, 2012 and importers, exporters and manufacturers would not be required to submit the computerized National Identity Card Numbers (CNICs) and National Tax Number (NTNs) of their unregistered buyers in sales tax returns to be filed in June 2012.

Under the new scheme, the FBR has decided that the SRO 191(I)/2012 would continue to operate in 2012-13 with amendments to the controversial clauses of the notification. This would require re-drafting of the SRO191 to limit disallowance of input tax adjustment. In this regard, the clause pertaining to disallowing input tax adjustment may be limited to 10% of the amount of input tax claimed.

Sources were of the view that the SRO to be retained in present form except that provision of disallowing input tax adjustment shall be limited to 10 percent of the amount of input tax claimed, they added.

When asked about documentation measures under Finance Bill (2012-13), tax experts raised questions about the implementation of new documentation measure to collect one percent tax from supplies of manufacturers to their wholesalers and distributors as the same documentation scheme in sales tax under SRO191 has failed to achieve the desired results.

In the Finance Bill 2012-13 requires from manufacturers to deduct 1 percent tax from their traders and distributors, the sources informed expectedly it would be emerged as a new controversy.

According to details, tax experts informed that this amendment seeks to require the manufacturers to collect tax at one percent per cent of the gross amount of sales to distributors, dealers and wholesalers. The terms distributors, dealers and wholesalers have not been defined in the Ordinance. Accordingly, unless so defined, the definition in the compatible laws or general commercial meanings shall apply. Such tax is to be collected from all such persons irrespective of amount of sale and status of the distributor, dealer and wholesaler as to National Tax Number (NTN) to ensure documentation of economy, experts said.

The question arises that in cases of un-registered buyers how can manufacturer be able to collect particulars of their customers to generate payment challan. It is important to note that same amendment without involving of tax amount was introduced through sales tax notification 191 which was remain non operational.

Tax experts further raise questions over application of collection of tax. Since manufacturer is supplier and remains at the mercy of customers for collection of its payment particularly under tough economic condition payment recovery is already a problem now burdened with additional requirement to collect tax on behalf of government, if he failed he has to pay at his pocket besides facing penal action, which makes whole scheme creating vulnerable position to existing registered industries.

It seems that government rather providing relief to the existing taxpayers failed to adopt measure which directly hit undocumented sector rather putting existing taxpayers in stress, this collection of tax at the time of sale shall be adjustable by the distributors, dealers and wholesalers against their tax liability, experts added.