The Federal Board of Revenue (FBR) has empowered Customs officers to recover sales tax at the import stage and strengthened the legal authority of the customs department to ensure recovery from importers. According to the amendment in Sales Tax Act through Finance Bill (2015), customs officers would be authorised to recover sales tax not paid on imports.
Under section 6 of the Sales Tax Act, 1990, sales tax on imports is paid in the mode and manner as provided in the Customs Act, 1969, and the provisions of, the latter Act relating to collection, payment and enforcement have been made applicable. In some cases, the show-cause notices issued by Customs officers to recover sales tax due on imports have been declared illegal on the ground that the said section does not specifically provide for recovery of sales tax on imports under the provisions of the Customs Act, 1969. Accordingly, it is proposed to make a clarifying amendment to the said section 6.
In order to electronically monitor and track production and clearances of certain industries (cigarettes, beverages, cement, fertilizer and sugar), provisions were inserted in the Sales Tax Act, 1990 and the Federal Excise Act, 2005 in 2013. However, these provisions could not be implemented in the absence of procedural rules. It is therefore proposed to introduce rules for implementing the system of electronic monitoring of production, in line with the global practices. Amendment is also proposed to be introduced in the relevant provisions that the manufacturers shall bear the cost of electronic monitoring.
Currently, reclaimed lead is exempt from sales tax if supplied to registered manufacturers of lead batteries. This exemption is proposed to be converted to concessionary rate of 5% in proposals above. The reclaimed lead supplied to manufacturers for lead manufacturing is subject to sales tax at standard rate. In order to ensure even treatment, the reclaimed lead supplied to recognised lead manufacturers is proposed to be accorded similar treatment as that supplied to battery manufacturers.
As per definition of the supply given in section 2 of the Sales Tax Act, 1990, the toll manufacturers are not explicitly covered. As a result of 18th Amendment, sales 'tax on services falls under the domain of the provinces. A persistent controversy exists regarding the taxability of Toll manufacturers as the provinces claim that the activity falls under the ambit of services. Historically the toll manufacturers have been treated as manufacturers and their supplies have been subject to sales tax under tile Sales Tax Act, 1990. Therefore, in order to bring clarity, it is proposed that the definition should be amended to include Toll manufacturing in the definition of supply.
Through Finance Bill, input tax adjustment against the provisional Goods Declarations (GDs) is not currently available under the provisions of section 7 of the Sales Tax Act, 1990. It is proposed that section 7 may be amended suitably to provide adjustment against the provisional GDs. This measure is aimed at facilitating registered importers in getting timely adjustment of sales tax paid at import stage.
In many sectors, such as telecom, a huge number of transactions are made, recorded through electronic systems, and utilising complex and sophisticated accounting techniques. In order to ascertain the true tax liability of such sectors, it is essential that forensic audit be conducted through professional experts, but the existing provisions of the Sales Tax Act, 1990 and Federal Excise Act, 2005 do not clearly enable the department to get forensic audits conducted by experts. In such sectors, joint audit with the provinces is also required. To address these issues, it is proposed that audit provisions in the Sales Tax Act, 1990, and the Federal Excise Act, 2005, may be amended suitably to cater for the requirements of the forensic audit, jointly with provinces, FBR maintained.
In order to obtain information required for the purposes of the Sales Tax Act, 1990 and Federal Excise Act, 2005 from other Governments or foreign countries, it is proposed to add specific provisions to enable exchange of information relevant to sales tax and excise duty with other Governments or foreign countries. Currently, if a registered person files sales tax return or pays the amount of tax after the due date, he is required to pay a penalty of Rs 100 per day in case of late filing and Rs 500 per day in case of late payment, up to a period of fifteen days. After fifteen days, the penalty amount is substantially increased. Taking advantage of lenient penalties for default up to fifteen days, the registered persons intentionally, delay their payments. To curb this trend, it is proposed to reduce the said time period of fifteen days to ten days through amendment in the Sales Tax Act, 1990, FBR said.
In order to control the use of fake and false claims of input tax credit, FBR has been trying to implement various corrective measures. One such proposal under active consideration is to require the registered persons to file the supply part of the return early so that the buyer can claim credit against declared supplies. This measure may be implemented during the coming financial year. It is proposed to include an enabling provision in section 8, whereby the proposed system can be made effective from the date to be notified by FBR.
To ensure proper tax compliance, the concept of active taxpayer list is being successfully implemented under the Income Tax Ordinance, 2001. The same concept is proposed to be introduced in the Sales Tax Act, 1990, to ensure timely filing of returns and other compliance by the taxpayer. To institute proper tax culture in the country, it is essential that general public is sensitised about the importance of tax and is encouraged to play its role in increasing tax revenue. To achieve this end, FBR may introduce some prize schemes for general public. It is proposed to insert relevant provisions in the Sales Tax Act, 1990.
Section 8A of the Sales Tax Act, 1990, holds the buyer equally liable if the supplier fails to pay tax in cases where buyer is in the knowledge or has reasonable grounds to suspect that some or all of the tax payable in respect of the supplies would go unpaid. To accommodate the demand from trade bodies, it is proposed to insert provisions in the said section whereby the burden to prove complicity of buyer would be on the department, FBR added.
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