CBR Chairman M Abdullah Yusuf on Friday announced clarifications on proposed amendment in the Finance Bill 2007-08. He said that the new banking schedule would now be applicable from tax year 2009; petroleum sector is excluded from one percent special surcharge and the government departments would operate as withholding agents to deduct sales tax on supplies made to these departments.
He was talking at a post-budget seminar jointly organised by the Institute of Chartered Accountants of Pakistan (ICAP) and Rawalpindi/Islamabad Tax Bar Association (RITBA). On the occasion CBR Chairman said that the levy of 1 percent surcharge would not be applicable on certain areas like petroleum sector.
He said that the government departments have been engaged in procurement of different items from the registered suppliers, who collect the bill after deduction of sales tax. In many cases, the supplier did not deposit the due amount of tax in the national kitty.
To effectively tackle the situation, the concept of withholding agents has been introduced in the sales tax law. The government departments such as Accountant General of Pakistan would act as withholding agents for deducting sales tax on supplies made to the government departments.
About new sales tax return, he said that the column of utility bills has been separately specified in the sales tax returns. This has been done to separately maintain utility data like electricity and gas consumption for conducting analysis etc.
He said that most of the amendments made in the Income Tax Ordinance 2001 are non-controversial. The special banking schedule would exclusively deal with the banking issues like provision of bad debt. On the sales tax side, the CBR has tried to take care of undocumented sectors and taken measures to check evasion in certain sectors. The CBR has observed that few sectors like iron and steel have substantially high value addition, but paying meagre amount of sales tax.
In the past, the sales tax regime has been widely misused and exploited by unscrupulous elements. The government had zero-rated five major exports sectors to check the situation. The carry forward system is also widely misused under the sales tax regime. Taxpayer can claim whatever is the cost of the sale. The CBR has tried to relate the monthly return with the cost of selling. He said that the levy of federal excise duty on air travel has been extended to the passengers travelling to Pakistan from abroad and on their return journey.
Other air travel relates taxes ie airport tax and foreign travel tax have been merged into the excise duty, but there is no change in rates. CBR Chairman said that the government had simplified the salary taxation for the benefit of the general public during the 2006-2007 budget by introducing slabs. This was a major relief for the government employees, which was highly appreciated at all levels.
For the first time, the CBR has introduced the concept of group relief and group taxation to facilitate the corporate sector. It would also encourage take over of groups of sick units to become subsidiary companies.
He clarified that any company, being a subsidiary of a holding company, may surrender its assessed loss for the tax year, in favour of its holding company or between subsidiaries of the holding company. However, such holding company being a public company listed on a registered stock exchange, directly acquires 55 percent or more of the share capital of the subsidiary company.
Where none of the companies in the group is a listed company, the holding company shall acquire 75 percent or more of the share capital of the subsidiary company. Chartered Accountant Tahir Razaq asked about the harsh provisions of section 8B introduced in the Sales Tax Act with reference to its rationale, operation in the absence of carry forward and affect on selling the goods at loss.
CBR Charmin responded that in order to curb the delinquent taxpayers this provision has been introduced and business houses can adjust 90 percent of its input/cost of goods sold. If input tax remains unadjusted he can adjust the remaining input tax without carrying forwarded in the next or subsequent month. The registered persons would not be allowed to adjust input tax in excess of 90 percent of the output tax for that tax period. When asked whether the CNG stations would be de-registered from the sales tax department without audit, CBR chairman replied "what do you want?"
Muhammad Shahid Sadiq, chartered accountant highlighted various proposed amendments in the Income Tax Ordinance. He said that the amnesty schemes should be discouraged and restricted to honest taxpayers.
In his detailed presentation, Majid Khandwala, a tax expert from Karachi strongly criticised certain amendments on the sales tax side. He said that no time limit has been specified for the board for issuance of order on the recommendations submitted by the Alternative Dispute Resolution (ADR) committee.
The seminar was also attended by Member Direct Taxes Salman Nabi; Member Tax Policy and Reforms Habib Fakhruddin; lawyer, Hafiz Muhammad Adress; sales tax expert, Fazal Faraz and leading chartered accountants of Islamabad and Rawalpindi.