The government has taken a key documentation measure by imposing the condition of providing CNIC on supplies to unregistered persons through an amendment proposed in section 23 with restriction of input tax placed in section 8 of the Sales Tax Act 1990.
Explaining details of procedural changes, Arshad Shehzad, a sales tax expert, informed that CNIC of the unregistered buyer is required to claim the corresponding amount of input tax. The government in this regard suggests amendment in section 23 relating to tax invoices and section 8 of the Sales Tax Ac1990 which provides disallowance of input tax. According to Shehzad, this is one of the major procedural amendments. Due to the highly undocumented economy, it is practically not possible for a registered taxpayer to obtain CNIC, NTN or other particulars of the customer. The government in the past has also failed to enforce a sales tax on the entire supply chain and broaden the tax base. The shifting burden to the narrow registered regime is therefore not fair, who already are under great stress due to tough business conditions now burdened with another restriction. At present, the supplies to unregistered persons are already chargeable to further sales tax at the rate of 3% which makes the total applicable sale tax at 20%. The measure was introduced in the past and taken back on the strong resentment. He expects the same fate this time too.
The rate of sales tax withholding to an unregistered person is also increased to 5% from 1%. This withholding, however, only applies to companies, the persons registered as an individual and AOP will not be affected with the amendment, Shehzad clarified.
The protection provided to the taxpayers from the sales tax audit of more than once in three years is proposed to be omitted. This law earlier protected audit more than once a year; however, last year the previous government has to extend the protected period to three years.
The chairman FBR also recently made a statement against unnecessary audits which, according to him, do not contributes any significant role in revenue collection. However contrary to his loud statements, the protection provided under the law is lifted through this bill.
The bill proposes to allow self-revision of sales tax return, in cases where the revised return is filed within sixty days of the filing of return where the tax payable is more than the tax paid or refund claimed is less than the already claimed.
Before this amendment, permission is required for all sorts of amendments in the sales tax return, which unnecessary gives discretionary powers to the Commissioner.
In one of the rare facilitation measures, the condition of a minimum payment of 10% under section 8-B is reduced to the extent of 5%. At present input tax is adjustable to the extent of 90% but this limit is now enhanced to 95%.
Through another important procedural amendment, the scope of retail sales tax is enhanced to imported goods through an amendment proposed in subsection 27 of section 2 of the STA 1990. The amendment is positive and provides a level playing field to the manufacturer of the same category.
The definition of the value of supply is also amended to third-party manufacturing through amendment seeking in section 2(46) of the STA.
The sales tax at a reduced rate of 7.5% is introduced on prepared foodstuff, sweat meats supplied by restaurants, bakeries, caterers and sweetmeat shops. It is important to note the provincial sales tax authorities are also claiming sales tax from restaurants and caterers. This levy by the federal government is now expected to start a new tug of war between province and federal government on collection of sales tax. It is not out of place to mention sales tax on toll manufacturing is already under litigation, Shehzad concluded.