There is a budget proposal to issue standard operating procedure (SOP) for the tax department to effectively deal with the frivolous cases made due to failure of the Federal Board of Revenue (FBR) web-portal to cross-match input tax data with the output tax in the electronically filed sales tax returns of buyers and sellers.
It is learnt here on Tuesday that the FBR is examining the budget proposals of the Association of Chartered Certified Accountants (ACCA) to remove legal and procedural flaws in the tax system. According to the budget proposals, the provision of section 8(1) (ca) of the Sales Tax Act prescribes that input tax credit is not admissible to the registered buyer if the corresponding output tax was not paid by the supplier. In recent times, frivolous cases have been made when the FBR web portal failed to cross-match the output tax in the tax return of the seller and the corresponding input tax in the tax return of the buyer.
Bearing in mind the mechanism of e-filing recently introduced in sales tax legislation, it seemed that the cross-matching of tax returns may not be possible. In view of this, it is suggested that a standard operating procedure (SOP) be issued by FBR to cater for all the foregoing factors and for possible resolution in cases where the FBR web portal fails to recognise payment of output tax by the supplier.
To deal with the issue of delisting, black listing and suspension of registration under section 21 of the Sales Tax Act, there should be provision that before declaring any person as blacklisted, the charge for issuing a fake invoice or committing tax fraud should also be established in the order-in-original rather than only in the 'show cause' notice. Furthermore, input tax on account of purchases by a genuine buyer (from a subsequently declared blacklisted person) should be allowable to the extent of purchase until blacklisted declaration date, as the genuine buyer would have bought the goods in the good faith and no such declaration had appeared on the FBR website at the time of the purchases. There are numerous reported and unreported judgements by ATIR in which the tribunal has held that blacklisting may only operate prospectively and no retrospective effect may be given to deprive the buyer of his legitimate right of input tax.
It should be clarified that for past cases (cases related to all preceding years) additional tax will be levied at the rate currently applicable as a default surcharge, subject to a maximum level of principal tax liability. The simultaneous levy or penalty and additional tax applicable under the Act may need to be removed, being unjustified, since both the provisions are of a punitive nature. "We propose that there should be only one penalty on a single default. Moreover, the default surcharge should not be charged on an inadvertent error, as was the case for additional tax," the ACCA budget proposal added.