So Ishaq Dar holds, according to a leading English Daily of 5th June, 2014. Lot many others may be camp followers of Mr Dar on this. Dar has remained, with laurels, also as a practicing accountant. Since he has a different cap 7 now, he is not supposed to have enough time to go into intricacies of the discipline of accounting FBR leads him into.
I would suggest that when he frames tax provisions touching borders of accounting, straight away reference of the matter should be to the standing Joint Committee of the Institute of Chartered Accountants (ICAP) and Institute of Cost & Management Accountants (ICMAP). Rather FM's instructions to the FBR Chairman/Finance Secretary should be that on such issues clearance of the aforesaid Joint Committee should be obtained prior to placing the same before Finance Minister and shaping them into law.
Proposed clause (iiia), in sub-section (2) of section 7 in the Sales Tax Act, seeks to tie the input claim with releases of goods from the warehouse to shop floor as against being on the basis of invoices for purchases. It would be leading to a cumbersome data not evenly acceptable for input tax claim. In the case of tax audit etc, the tax payer will have to undergo the ordeal of explaining the accounting system he has to the auditors and its juxtaposition with words of the law. This would be a rough and thorny journey, both for auditor and the auditee. This is bound to raise audit observations and ultimately get into litigation. A sure sufferer of this would be the national exchequer.
For what Dar! would you like to do so. Just to delay input claim for a while. Gain to the FBR through such input claim delaying does not appear enough lucrative. Connivance's of the parties at difference stages can be there. But most likely harmful both for business climate and FBR yield these will be.
There is a history with budget proposals being discussed. Language of present section 7 of the Act (substantially) emerged out of successive amendments in the Sales Tax Law. The issues were settled after lot of trouble and skirmishes. Business Recorders issues were full of it when the blaze was on. Why open these? For benefit of the ones on the sidelines!
Then the word "directly" in the new law leads to quagmires. Debate on what is meant by the word "directly" would be costly. The department would, in all probability, insist that the new phraseology excludes 'indirect material'. On the other side, the assessees and accountants would be arguing that it does not so mean. Indirect material is also directly used material in disregard to what accounting chart provides eg classification of indirect material used under the head "Overheads".
Same difficulty would be with regard to input claim for use of electricity, gas etc. The sales tax authorities are likely to be inclined to interpret that electricity used in the warehouses - for raw material and finished goods, laboratory, workers canteen, watch and ward etc can not be called: consumed directly for the manufacture, production or supply of taxable goods". Such an FBR perception, accountants may not and would not buy.
Mr Finance Minister! An expert in accounting and tax lore! With these small gimmicks, incremental tax gains at end of the tunnel would be meager, if any. Not worth it. Losses in the process are enormous, if you also account for the loss of time and goodwill the battles between FBR and the tax payers may take. You would also appreciate that a tax consultant hired to defend input tax claim for auxiliary material, by converting it into direct material, may "shape" other figures also.
That is about proposed section 7 of the Sale Tax Act, just by way of a sketchy example. There are scores of other sections in the law to be attended. Why not call Yusuf Abdullah, Shabbar Zaidi, Masoud Naqvi, Zafar Ahmed, Ebrahim Sidat, Saqib Masood, Khaliqur Rehman, Adrian Mufti, Asad Ali Shah and/or others of the species, to purge your budget proposals of provisions which may, rather will, make your travel as a proficient Accountant Finance Minister arduous.
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