ISLAMABAD: The Federal Tax Ombudsman (FTO) has proposed the Federal Board of Revenue (FBR) to abolish section 8B of the Sales Tax Act, 1990 to end restriction of 90 percent for claiming input tax adjustment.

It is learnt that the FBR is considering different budget proposals of the FTO office for 2023-24.

According to the budget proposal of the FTO office for the next fiscal year, the adjustment of input tax is basic right of a registered person as long as it is used in taxable activities. However, section 8B of the Sales Tax Act puts bar on the claim of Input tax in excess of 90 percent of output tax.

The application of this section does not involve any revenue enhancement but only procedural and creating huge refund pendency.

It is proposed that the section 8B may be omitted, the FTO added.

It is proposed that data of all sorts of withholding may be auto filled in the sales tax returns, income tax returns on through IRIS system.

The FTO office has also proposed that the turnover tax on Daal Mills and dealers may be reduced on the analogy of Rice and Flour being the basic food items.

It has also been proposed that the Islamabad Capital Territory (Tax on Services) Ordinance, 2001, should define the term “property developer and promoter”.

It is also not defined under the Sales Tax Act, 1990. This has created serious loophole in assessment and collection of sales tax on these services. Resultantly, the cases which are being framed are weak and have high chance of getting vacated at higher legal fora.

The FTO has also proposed the FBR to omit section 11B of the Sales Tax Act in the coming budget.

The section 11B empowers a commissioner IR or an authorized officer of Inland Revenue to issue “Assessment giving effect to an order” in compliance of an order issued by the Commissioner (Appeals), Appellate Tribunal, High Court or Supreme Court within one year from the end of the financial year in which the order of the aforementioned authorities was served on the Commissioner or the authorized Inland Revenue Officer.

This section is a serious obstacle in collection of legitimate government revenue confirmed by superior legal fora and courts. Moreover, the said time limit is extraordinary long and clearly to the disadvantage of not only business community but the State as well.

For example, an order passed in July 2023 by a Commissioner (Appeals) in favor of the registered person can be kept pending till June 2025. In either of the above situations, this section leaves room for financial corruption by the Departmental officers.

The section 73(1) of the Sales Tax Act puts bar on adjustment of input tax if the payment is not made from the bank account of buyer to bank account of supplier against sales tax invoices having equal to Rs 50,000 or more.

However, registered persons avoid this and issue huge number of invoices on daily or monthly basis which are of less than Rs 50,000.

This practice is usually done by fraudsters in issuance of fake or flying invoices. Therefore, there is a need to amend this section. It is proposed that a subsection 1 of section 73 of the Act may be amended as follows: After the words “fifty thousand rupees” the words “in a tax period” may be inserted, the FTO added.

Copyright Business Recorder, 2023