FINANCE BILL, 2006 AMENDNMENTS IN SALES TAX LAW

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FINANCE BILL, 2006AMENDNMENTS IN SALES TAX LAW

• PRESENTATION BY ASIM ZULFIQAR ALI, ACA

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COMPUTERISED SYSTEMSections 2(5AA) and 50A

• The expression computerized system has been
  defined to mean any comprehensive information
  technology information system to be used by the
  Board or any other office for carrying out the
  purposes of the Act.
• The CBR can now notify the use of computerized
  system inter-alia for filing of applications for
  registration, returns, declarations and other
  information.
• Persons authorized to access computerized systems
  shall be allocated Unique User Identifier with
  additional security including digital
  certification.

3
E-INTERMEDIARIESSections 2(9A) and 52A

• Concept of e-intermediary has been formally
  introduced. E-intermediary is defined to mean a
  person engaged for filing an electronic return.
  The CBR would issue notification for appointment
  of e-intermediaries. A registered person may
  authorize any notified e-intermediary to
  electronically file a return or any other
  document as specified by the CBR. All statements,
  declarations and information are to be filed by
  e-intermediary with the knowledge and consent of
  registered persons. In case of filing of false or
  incorrect information, document or declaration,
  e-intermediaries and registered person would be
  liable jointly and severally.

4
RECORDSSections 2(29A) and 22

• Taxpayers are now required to maintain Sales Tax
  Account under double entry book keeping system
  in their books of account. Such accounts would
  reflect input tax, output tax and other
  adjustments by way of a separate amount. However,
  CBR has clarified that the provision would
  initially be required to be complied by corporate
  sector only.

5
FINANCIAL AND OPERATING LEASESSection 2(33)

• The definition of supply has been amended. The
  exclusion for financial and operating lease has
  been removed. Accordingly, lease of assets would
  be treated to be supply for the levy and charge
  of sales tax.
• The manner of charge and levy of sales tax in
  case of a lease arrangement needs to be
  prescribed.

6
VALUE OF SUPPLYSection 2(46)

• The CBR is at present empowered, through
  notification, to fix the value of local supplies
  for levy of sales tax. This power has now been
  extended for imported goods as well. If, however,
  the value at which the import or supply is made
  is higher than that fixed by the CBR, the value
  for levy of sales tax shall be such higher
  amount, unless otherwise specified by the CBR.

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TAX CREDIT NOT ALLOWEDSections 8(1) and 8A

• Tax credit for input tax will also not be allowed
  in respect of goods, on which Sales Tax has not
  been deposited by the supplier into the
  Government Treasury. The manner of operation of
  this provision needs to be explained.
• Furthermore, persons involved in supply chain are
  made jointly and severally liable for unpaid
  amount of tax on taxable supply, if they are in
  knowledge of or have reasonable grounds to
  suspect such default.
• These amendments appear to have been made as a
  consequence of a decision of the Federal Tax
  Ombudsmen (FTO) reported as (2005) 91 TAX 41 (FTO
  Pak) whereby the FTO did not approve the
  disallowance of adjustment of input tax on the
  grounds that the same was not deposited by the
  supplier.
• The implementation of this amendment needs
  serious considerations especially in the light of
  language employed.

8
SHORT PAID AMOUNTS RECOVERABLE WITHOUT NOTICE
Section 11A

• The Sales Tax authorities can now recover short
  payment of tax as indicated in the return along
  with default surcharge through imposition of
  embargo and attachment of bank accounts, without
  engaging in the process of issuing a show-cause
  notice. However, imposition of penalty has been
  linked with issuance of show cause notice.

9
OPTION FOR SUPPLIERS OF EXEMPTED GOODSSection
13(4)

• The option for a taxpayer not to avail statutory
  exemption and pay applicable tax through normal
  regime has been withdrawn.

10
RETURNSSection 26

• A combined monthly return has been prescribed for
  both sales tax and federal excise.
• The CBR can notify any person or class of persons
  to file quarterly returns instead of a monthly
  return. Commercial importers have been notified
  to file quarterly returns.
• The facility to file electronic returns has been
  extended to all registered persons at their
  options except the corporate sector, where it is
  mandatory.

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RETURNSSection 26

• Corporate sector is also required to file an
  annual return by September 30 with the objective
  to reconcile declaration of sales tax and income
  tax.
• The time limit for revision of return has been
  restricted to ninety days. The approval of the
  relevant Collector of Sales Tax is now also
  required for filing of a revised return.
• Separate sales tax return formats have also been
  prescribed for the following
• - Commercial importers
• - Retailers
• - Jewellers
• - Stevedores
• - Ship breakers
• - Car dealers

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SPECIAL AUDITSSection 32A

• A special audit has been prescribed whereby
  Chartered Accountants can now undertake audit of
  refund claims.

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OFFENCES AND PENALTIESSection 33

• Provisions relating to penalties have been
  amended to include the following
• Any person who fails to submit summary of sale
  and purchase invoices required under a
  notification issued under this Act.
• Where any person repeats an offence for which a
  penalty is provided under this Act.
• Any person who
• a) knowingly and without lawful authority gains
  access to or attempts to gain access to the
  computerized system or
• b) unauthorisedly uses or discloses or publishes
  or otherwise disseminates information obtained
  from the computerized system or
• c) falsifies any record or information stored in
  the computerized system or

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OFFENCES AND PENALTIESSection 33

• d) knowingly or dishonestly damages or impairs
  the computerized system or
• e) knowingly or dishonestly damages or impairs
  any duplicate tape or disc or other medium on
  which any information obtained from the
  computerized system is kept stored or
• f) unauthorizedly uses unique user identifies of
  any other registered user to authenticate a
  transmission of information to the computerized
  system or
• g) fails to comply with or contravenes any of the
  conditions prescribed for security of unique user
  identifier.

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OBLIGATION TO PRODUCE DOCUMENTS PROVIDE
INFORMATIONSection 38B

• Any officer not below the rank of Deputy
  Collector is empowered to require any documents
  or record and take extracts there from or from a
  third party and request for other information and
  explanation for audit or inquiry or
  investigation. The CBR can also ask for any
  information required for policy formulation.

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TIME LIMIT OF ADJUDICATIONSection 45

• Sections 11(4) and 36(3) provide certain time
  limits for issuance of order by adjudicating
  authorities, after issuance of show cause notice.
  The FTO, through a recent judgment, has also
  endorsed these legal limitations and cancelled
  the order of the adjudicating authority, passed
  beyond time limit. Through a proposed amendment
  in section 45, adjudicating authorities are
  allowed to finalize all pending cases by December
  31, 2006.

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APPEAL TO APPELLATE TRIBUNALSection 46

• For the words Sales Tax Department the
  expression an officer of Sales Tax, not below
  the rank of an Additional Collector has been
  substituted.
• The effect of amendment is to nullify the
  objection of certain taxpayers whereby appeals
  filed by other departments like Directorate of
  Intelligence Investigation were disputed.

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APPEAL TO COLLECTOR (APPEALS)Section 45B

• An amendment has been made whereby the condition
  relating to the mandatory payment of 15 per cent
  of tax adjudged against a registered person has
  been withdrawn for preferring an appeal before
  the Collector (Appeals). Consequently, the stay
  against demand would have to be obtained. Similar
  condition as laid down in the Income Tax law had
  been withdrawn earlier.

19
ALTERNATIVE DISPUTE RESOLUTION (ADR)Section
47A

• An application for ADR can only be moved, if a
  dispute is pending before an Appellate authority
  or the High Court.
• Additional Collector has been categorically
  nominated as member of ADR.
• Retired Judges not below District Sessions
  Judge also included in the ADR panel.

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THIRD SCHEDULE

• Following items have now been included in the
  Third Schedule for payment of Sales Tax at retail
  price by the manufacturer. In this situation
  sales tax at retail price is charged at the
  manufacturing stage.
• Toilet paper and tissue paper
• Species sold in retail packing bearing brand
  names and trade marks
• Electric bulbs including energy saving lamps and
  fluorescent tube lights
• Snacks including potato chips sold in retail
  packing
• Shoe polish shoe cream
• Articles of footwear have been taken out from the
  ambit of this schedule.

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SIXTH SCHEDULE

• Exemption from sales tax has been provided for
  the following items
• Aircrafts
• (Previously the exemption was not available for
  aircrafts imported for recreational or pleasure
  purposes)
• Exemption from sales tax has been withdrawn on
  the following items, however, consequential
  adjustment has been made for custom duties
• Computer hardware including laptops, notebooks,
  PCs mainframe and other peripheral units and
  parts thereof.

22
ZERO RATING

• Certain items of Dairy and related products as
  described below which were earlier exempt from
  levy of sales tax have now been placed under zero
  rating regime through SRO 548(I)/2006 dated June
  5, 2006. Accordingly input tax borne becomes
  refundable.
• Fresh, liquid and dried milk without addition of
  sugar or any other sweetening matter whether
  packed or not.
• Cream excluding those packaged and sold under
  brand name or trademark.
• Plain yogurt excluding packaged or sold under
  trade mark or brand name.
• Whey excluding packaged or sold under brand names
  or trademarks.
• Butter not sold under brand names or trademarks.
• Desi ghee derived from milk.
• Cheese excluding packaged or sold under brand
  names or trademarks.

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RULES

• SALES TAX RULES, 2005 SUBSTITUTED BY SALES TAX
  RULES, 2006
• SALES TAX SPECIAL PROCEDURE RULES, 2005
  SUBSTITUTED BY SALES TAX SPECIAL PROCEDURE RULES
  2006

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BLACK LISTING AND SUSPENSION OF REGISTRATION

• Any claim of input tax against invoice issued by
  a person whose registration has been suspended
  will now not be entertained. In case such person
  is black listed, input tax claimed against
  invoices issued by such person even prior to such
  black listing will be disallowed.
• Such action will, however, be taken after
  allowing proper opportunity and will be
  appeal-able.

25
REFUND

• In order to simplify the refund process,
  procedures have now been prescribed for
  processing of refund claims of persons making
  local zero-rated supplies, persons exporting
  goods, the local supply of which is exempt and
  the persons who are not able to adjust excess
  input tax as allowed under an adjustment advice
  in three months.

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DEBIT, CREDIT NOTES

• Debit, Credit Notes Rules have been redrafted to
  separately address the situations conceived in
  section 9 of the Act.
• Rule 20 addresses cancellation and return of
  goods, whereas Rule 21 deals with change in
  value of supply

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ALTERNATIVE DISPUTE RESOLUTION RULES

• The Alternative Dispute Resolution Rules have
  been amended to provide for disposal of dispute
  within 45 days by the Alternative Dispute
  Resolution Committee (ADRC). The Rules also
  stipulate proper record maintenance of ADRC
  proceedings and holding of ADRC meeting in
  Collectorates.

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PAYMENT OF SALES TAX ON VALUE ADDITION FOR
COMMERCIAL IMPORTERS

• Following new returns have been prescribed for
  commercial importers
• - Quarterly return (in place of monthly return)
• - Quarterly item wise detail of imports and
  supplies made.
• - Annual return
• In case of import of goods included in the Third
  Schedule, the sales tax on value addition, shall
  be paid on the basis of the retail price or 15
  percent value addition on import value, whichever
  is higher.

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PAYMENT OF SALES TAX ON VALUE ADDITION FOR
COMMERCIAL IMPORTERS

• The requirement of paying tax at a rate higher
  than 10 per cent on the basis of actual value
  addition in preceding year has now been dispensed
  with and now in all cases minimum value addition
  tax is to be paid at 10 per cent.
• In case of supply of locally manufactured goods
  by a commercial importer, other than supply of
  goods in respect of which value addition is
  already fixed through separate notification,
  there will be minimum value addition of 5 per
  cent for such local supply of goods.
• The immunity from audit available to commercial
  importer paying sales tax on minimum value
  addition has now been withdrawn.
• The prescribed form of Nil return has been
  deleted.

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PAYMENT OF SALES TAX BY RETAILERS

• As a result of this amendment in the rules, all
  supplies by retailers would be subject to tax at
  the rate of 3 per cent of value of supply without
  any input tax adjustment. Retailers opting to pay
  sales tax at the standard rate of 15 per cent
  shall be allowed input tax adjustment. Previously
  such persons were subject to a minimum value
  addition of 10 on purchase price, or at a
  reduced rate specified in the rules.
• Earlier this scheme was applicable for retailers
  engaged in supply of certain export oriented
  industrial products only.
• Sale of items subject to different tax regimes
  such as third schedule items should be excluded
  from the ambit of these Rules having already
  been taxed at the maximum value addition. This
  aspect has been taken care of in
  Wholesale-cum-Retail case.

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WHOLESALE CUM RETAIL OUTLETS

• New rules have been prescribed for chain of
  wholesale -cum-retail outlets engaged in bulk
  import and supply of goods.
• These Rules have been framed for catering the
  requirements of big Cash Carry Outlets by
  fully appreciating the business processes

32
SALES TAX ON ELECTRIC POWER COMPANIES

• Late payment surcharge is no more liable to be
  included in the value of supply, for levy of
  sales tax bringing an end to protracted
  litigation.
• Rules relating to payment of sales tax have been
  amended to provide equal treatment to KESC and
  WAPDA. Now, both WAPDA and KESC are liable to
  collect and pay sales tax on accrual basis.

33
SALES TAX ON VEHICLES

• Rules relating to sales tax on supply of vehicles
  have been amended to exempt payment of sales tax
  on old, used and second hand vehicles in case of
  direct person-to-person transfers without the
  involvement of a dealer.

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SUMMARY OF SALES TAX NOTIFICATIONS
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