Sales Tax Special Procedure: e-verification of deduction, withholding planned

The Federal Board of Revenue has decided to focus on the most neglected area of sales tax collection under Sales Tax Special Procedure (Withholding) Rules, 2007 by electronically verifying deduction and withholding of sales tax by government departments/ autonomous bodies, public sector entities and taxpayers falling in the jurisdiction of Large Taxpayers Units (LTUs).
Sources told Business Recorder here on Monday that the FBR wanted to ensure compliance of the Sales Tax Special Procedure (Withholding) Rules by all withholding agents. Under these rules, the board had declared government departments/autonomous bodies, etc, as withholding agents for deducting a certain percentage of the total payable sales tax involved in transaction of supplies made to these departments.
The withholding agents are bound to deduct an amount equal to one-fifth of the total sales tax shown in the sales tax invoice issued by the supplier and make payment of the balance amount to him. It was primarily an enforcement measure for compliance by both the withholding agents and suppliers to the government departments. Out of total sales tax payable by the suppliers, the agents including LTUs will withhold a specific amount of tax and the balance amount would be returned to the suppliers for depositing in the national kitty.
In this regard, it has yet to be seen whether the amount other than that deduced by sales tax withholding agent has also been deposited in the national exchequer. This is one of the neglected areas where the tax department needs to verify the payment of the remaining amount of sales tax to be paid by the suppliers and vendors to these agents. This would not only encourage documentation, but also improve sales tax collection.
According to sources, the FBR Enforcement Wing has decide to place an electronic system to ensure monitoring of sales tax deducted and deposited under the Sales Tax Special Procedure (Withholding) Rules through an electronic system. The purpose of the whole exercise is to ensure that if the withholding agent has withheld 20 percent sales tax of the total due amount of tax, whether the remaining amount has also been deposited in the national kitty. In the past, the tax department has not give due importance to this potential area of Sales Tax Special Procedure (Withholding) Rules.
Sources said that the sub-rule 6 of the Sales Tax Special Procedure (Withholding) Rules has specified that in case withholding agent is also registered under the Sales Tax Act, 1990, or the Federal Excise Act, 2005, he shall file the return and deposit the withheld amount of sales tax in the manner as provided under Chapter II of the Sales Tax Rules, 2006, along with other tax liability and such person shall not be required to file the return in the term as set out in the Annexure to these rules. The said sub-rule clearly said that such withholding agents would not be required to monthly sales tax withholding statement as they would only file sales tax return under Chapter II of the Sales Tax Rules. The FBR will also have to verify whether registered LTUs are filing the monthly sales tax withholding statement as mentioned in the Sales Tax Special Procedure (Withholding) Rules, sources added.