Collection of ST and SED: FBR asked to scrutinise sugar sector tax returns

The Auditor General of Pakistan has strongly recommended the Federal Board of Revenue to scrutinise the sales tax returns filed by sugar manufacturers for proper collection of sales tax and special excise duty (SED) from the sector. Sources told Business Recorder on Saturday that a study of the AGP on sugar sector recommended analysis of the sales tax returns filed by the sugar units.
The AGP has also detected non-payment of special excise duty (SED) on supply of sugar by the manufactures, causing loss to the exchequer. Sources said the FBR is finalising comments on the AGP study in view of data compiled by Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs).
The AGP report said that according to section 3(1)(a) of the Federal Excise Act, 2005 read with SRO 655(1)/2007, special excise duty at the rate of one per cent of the value shall be levied, collected and paid on goods produced and manufactured as specified in the First Schedule to the Customs Act, 1969, expect the goods mentioned therein. This SRO takes effect from July 1, 2007.
The scrutiny of available sales tax record ie soft copy of sales tax returns/profiles of the 14 registered persons for the period from July, 2008 to March, 2010 under the jurisdiction of FBR, Islamabad revealed that the said registered persons neither charged nor paid special excise duty on supply of sugar in contravention to the above provision of law.
Under self assessment system of sales tax, registered persons are responsible for assessment and payment of their tax liability and to submit their returns. The FBR department (Enforcement and Accounting Wing) is required to scrutinise the returns filed by the taxpayers to ensure revenue due to government have been properly assessed and paid. Due to improper functioning of these internal controls 14 registered persons neither charged nor paid special excise duty during the period under audit. The irregularity resulted in non-payment of special excise duty amounting to Rs 174.142 million, AGP said.
It recommended that the matter needs to be justified or amount pointed out be recovered from registered persons along with penalty and default surcharge leviable under law. There is a need to streamline the practice leading to evasion of government revenue.
The AGP also detected non-payment of special excise duty by certain registered person Rs 62.324 million. According to section 3(1) (a) of the Federal Excise Act, 2005 read with SRO 655(1)/2007 dated 29.06.2007, special excise duty at the rate of one per cent of the value shall be levied, collected and paid on goods produced and manufactured in Pakistan as specified in the First Schedule to the Customs Act, 1969. Contrary to the above provisions of law above, scrutiny of available sales tax record ie soft copy of sales tax returns/profiles in respect of eight registered persons for the period July, 2009 to March, 2010 revealed that registered persons were manufacturer of sugar and did not pay the special excise duty on the supply of sugar. The lapse resulted in non-payment of special excise duty amounting to Rs 62.324 million.
In another audit objection, the AGP pointed out that according to section 3(1)(a) of the Federal Excise Act, 2005 read with SRO 655(1)/2007 dated 29.06.2007, special excise duty at the rate of one per cent of the value shall be levied, collected and paid on goods specified in the First Schedule to the Customs Act, 1969, except the goods mentioned therein. And value of supply means the value at which supply is made higher than the value fixed by the Board, the value of goods shall, unless otherwise directed by the Board, be the value at which the supply is made (further proviso given under Section 2(46)(g) of the Sales Tax Act, 1990).
The scrutiny of available sales tax record of 9 registered persons for the period from July, 2008 to March, 2010 revealed that the registered persons manufactured and supplied sugar and paid special excise duty on notified price for the purpose of sales tax instead of actual selling price in contravention to the above quoted law.
Due to non availability of complete record/ data Audit could not ascertain actual quantum of revenue on this account. Hence, the department is requested to look into the matter meticulously and adopt necessary measures to ensure proper assessment of government dues. The lapse resulted in short-payment of special excise duty amounting to Rs 24.881 million, AGP said.
The AGP also detected short-payment of special excise duty on supplies made to un-registered person, traders and others 11.069 million. The scrutiny of available sales tax record ie soft copy of sale tax returns/ profiles of four registered persons for the period July, 2009 to March, 2010 revealed that registered persons were manufacturer of sugar and had made non/short payment of special excise duty on the supply of sugar to unregistered persons and M/s Trading Corporation of Pakistan in contradiction to the above mentioned law.
Whereas, during the same period the duty was rightly charged on supplies made to the registered persons and also rightly charged/calculated in other months of the year even on supply of sugar to unregistered person/Trading Corporation of Pakistan.
The lapse resulted in short-payment of special excise duty amounting to Rs 11.069 million. The matter needs justification or amount pointed out be recovered from registered persons along with penalty and default surcharge leviable under the law. There is need to strengthen internal control to check such dichotomy while making assessment of government revenues by the registered persons, AGP recommended.
The scrutiny of available sales tax record of a sugar mills of Lahore for the period July, 2007 to June, 2009, under the jurisdiction of, LTU, Lahore revealed that registered person did not pay or paid short special excise duty on the supply of sugar due to the reason that sugar was manufactured before the levy of that SRO, though the supply had been made in period when this SRO was implemented. The AGP was of the view that 1 percent special excise duty is levied on supply of goods made on or after July 1, 2007 irrespective of its date of manufacture. The lapse resulted in non-payment of special excise duty amounting to Rs 6.384 million.