Pakistan Business Council (PBC) has proposed withdrawal of a harsh provision of the Sales Tax Act, 1990 which has fixed joint liability of persons in a supply chain where tax is unpaid and all persons in the chain will be jointly liable for payment of such unpaid amount of tax.
In its budget proposals for (2011-12), the PBC has proposed to delete section 8A of the Sales Tax Act, 1990. The rationale behind the deletion of section 8A is that the person making the payment in good faith should not be made responsible for non-compliance by the supplier, PBC added.
When contacted a tax expert said that the controversial section 8A of the Sales Tax Act has never been invoked by the FBR to penalise the entire supply chain in case of non-payment as per provisions of the said law. The FBR had introduced several strict provisions in the Sales Tax Act, 1990 to reject the fraudulent refund claims where the amount has not been actually deposited by the supplier in the national kitty. The section 8 of the Sales Tax Act was amended through Finance Bill 2006 to disallow refund or 'input tax adjustment' in case the tax claimed has not been deposited by the respective supplier in the government treasury.
Under the law, all partners in the supply chain would be jointly liable to deposit the unpaid amount of tax in the government treasury in case the tax due on any stage of supply is not deposited. Now, both the buyer and the seller would be responsible for depositing the amount of tax involved in a transaction. In this regard, the section 8A has been enacted in the Sales Tax Act, 1990 fixing joint liability of persons in a supply chain where tax is unpaid and all persons in the chain shall be jointly liable for payment of such unpaid amount of tax.
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