The proposed reduction in standard rate of sales tax by 1 percent to 16 percent in the Finance Bill 2011 is a favourable proposal from a taxpayer's point of view, experts said. "The standard rate of sales tax was enhanced to 17 percent through the Finance Act, 2010 and now it has been proposed that the standard rate of sales tax will be reduced to 16 percent," Ernst & Young Ford Rhodes Sidat Hyder, while commenting on various amendments to the Finance Bill 2011 said.
It said that the rate of 16 percent will be applicable with effect from July 1, 2011. Adjustable input tax: Under Section 8B a registered person is not allowed to adjust input tax in excess of 90 percent of the output tax for the tax period. There is also a proviso that the input tax claimed on acquisition of fixed assets shall be adjustable against the output tax in 12 equal monthly instalments.
The above proviso has been deleted and proposed to be replaced by a proviso whereby the restriction of adjustment of input tax in excess of 90 percent of the output tax would not be applicable in the case of input tax on fixed assets or capital goods.
The above amendment effectively allows the immediate claim of the entire input tax on fixed assets or capital goods without any limitation. In this regard it is relevant to point out that plant, machinery and equipment including parts thereof were zero-rated and consequently there was no incidence of input tax which could be claimed against the output tax.
The zero rating has recently been removed in March 2011 and consequently, sales tax is now payable on import and supply of the same. The proposed amendment is apparently to facilitate immediate claim of tax on plant machinery and equipment without any restrictions and thereby be eligible for refund of excess input tax.
Blacklisting and suspension of registration: Under Section 21 the Commissioner has a right to suspend and blacklist registration of a registered person. In the Finance Bill 2011, it is now proposed to add sub-section 3 whereby the invoices issued during the period of suspension of registration shall not be entertained for the purposes of sales tax refund or input tax credit.
It further stipulates that once a suspended person is blacklisted, the refund of input tax credit claimed against the invoices issued by him whether prior or after such blacklisting, shall be rejected through a self speaking appealable order and further affording an opportunity to the blacklisted person of being heard.
The above provision is already available in Sales Tax Rules 2006; however, it is now proposed to incorporate it into the text of the main law. Sales Tax Return: Section 26 deals with filing of sales tax return and permits filing of a revised return within 120 days of the filing of the original return subject to the approval of the Commissioner Inland Revenue. It is now proposed that the facility of filing a revised return be extended to special returns that may be required to be filed under Section 27 of the Act.
Additionally Rule 14A of the Sales Tax Rules, 2006 provided that a revised return could be filed without the need for prior approval of the Commissioner and without any time limit in the event the revision of the return resulted in payment of tax over and above the tax paid through the original return. Rule 14A has been deleted thereby implying that prior approval of the Commissioner and the time limit of 120 days will apply in all cases.
Appointment of authorities: Section 30 deals with appointment of various officers for sales tax purposes. It is proposed to introduce a new designation by way of Inspector Inland Revenue. Obligation to produce documents and provide information: The authority to seek information and conduct an audit under Section 38B is confined to an officer not below the rank of Deputy Commissioner Inland Revenue. It is now proposed to delegate such authority to a lower ranking officer ie Assistant Commissioner Inland Revenue.
Sales tax refund: Section 66 deals with refund of tax, which may be claimed within one year. It is proposed to add a proviso that no refund shall be admissible if the incidence of tax has been passed directly or indirectly to the consumer.
Condonation of time limit: The Board is empowered to condone the time limit under any provisions of the Act or the Rules made thereunder. This facility was understood to be available to a registered person. It is proposed to insert an explanation under section 74 whereby apart from a registered person, the facility of condonation of time limit is also available to the tax authorities as well. This would mean that the tax authorities can seek condonation of time limit prescribed under law for issuing show cause notices, conducting audits, filing appeals, etc.
Special procedure for payment of sales tax by importers: Under Rule 58B sales tax on account of minimum value addition is levied and collected at import stage of goods, other than those imported by a manufacturer for in-house consumption, at the rate of 2 percent. It is proposed to enhance this rate to 3 percent.
Appointment of Alternative Dispute Resolution Committee: The Rule 65 deals with the functioning of the Alternative Dispute Resolution Committee and prescribes a time limit for submission of the Committee's report to be within 60 days of its appointment. The time limit for submission of such report has now been enhanced to 90 days.