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Post Budget Seminar Organized by: Karachi Tax Bar Association. Budget 2012 – 2013. Majid Khandwala Partner - Tax 04 June 2012. Fiscal Budget 2012 – Sales Tax. Table of contents Updates in the sales tax laws. Assessment & recovery of tax Section 11.
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Post Budget Seminar Organized by: Karachi Tax Bar Association Budget 2012 – 2013 Majid Khandwala Partner - Tax 04 June 2012
Assessment & recovery of taxSection 11 • Under the Act separate sections are provided for • “Assessment of Tax” – Section 11 and • “Recovery of tax not levied or short-levied or erroneously refunded” – Section 36 • It is now proposed to consolidate both under revised Section 11 titled • “Assessment of Tax and recovery of tax not levied or short-levied or erroneously refunded”.
Assessment & recovery of taxSection 11 • Major changes in the revised Section 11
Supplies against International Tenders Fifth & Sixth Schedules • “Supplies against international tenders” is proposed to be deleted from the Fifth Schedule and included in Table II of the Sixth Schedule. • Therefore, supplies against international tender will now be exempt instead of being zero rated.
Supplies against International Tenders Fifth & Sixth Schedules • Major changes
Higher sales tax rates abolishedSRO 644(I)/2007 dated 27 June 2007 • With effect from 2 June 2012, SRO 644(I)/2007 dated 27 June 2007 has been rescinded, abolishing higher sales tax rates of - • 22% on certain types of chemicals, paper and paperboard, glass, plastics, etc. • 19.5% on flat rolled products of iron or non-alloy steel, stainless steel and other alloy steel, etc.
Higher sales tax rates abolished Impact of Section 8B • Section 8B of the Act restricts the claim of input tax to 90% of the output tax except for the following sectors excluded vide SRO 647(I)/2007: • electricity, gas, oil, zero rated supplies, commercial importers, wholesale cum retail outlets, wholesalers and distributors, manufacturers consuming raw materials taxed at higher rates, etc. • As higher sales tax rates have now been abolished, the 90% limit of input tax claim will now be applicable upon such manufacturers.
Amendments in Sales Tax Rules, 2006SRO 589(I)/2012 dated 01 June 2012 • Amendment in registration rules for sales tax – Rules 5 & 7
Amendments in Sales Tax Rules, 2006SRO 589(I)/2012 dated 01 June 2012 • Procedure for transfer of business is prescribed as follows – Rule 7 • The same etration number would continue in aforesaid cases. • In case of transfer on any other account, a new Sales Tax Registration Number shall be issued to the entity. • The cases of transfer of business from an Individual to a corporate entity are not covered.
Amendments in Sales Tax Rules, 2006SRO 589(I)/2012 dated 01 June 2012 • Blacklisting of taxpayers
Amendments in Sales Tax Special Procedures Rules, 2007 SRO 592(I)/2012 • The following amendments take effect from 02 June 2012:
Amnesty SchemeSRO 548 (I)/2012 dated 22 May 2012 • Vide this SRO amnesty from surcharge and penalty was granted on non-payment of sales tax or FED outstanding on account of: • Audit observation • Show cause notice • Adjudication order • Failure to pay sales tax/FED • Inadmissible input tax claim • Provided the payment is made by 31 May 2012 • This date has not been extended so far.
Amnesty SchemeSRO 606(I)/2012 dated 1 June 2012 An amnesty scheme for persons who have claimed input tax illegally has been introduced granting – • Exemption from payment of penalty and default surcharge on outstanding sales tax payments • Abatement of any criminal proceedings lodged by the department • The last date for payment is 25 June 2012 • This is subject to the condition that proceedings filed by registered persons at appellate forum are withdrawn • This scheme replaces the earlier one issued through SRO 563(I)/2012 dated 25 May 2012
. Significant Pre-Budget Sales Tax Amendments
Taxability of fixed assetsSRO 727(I)/2011 dated 1 August 2011 • Import of plant & machinery • Not manufactured locally, and • Having no compatible local substitute • Imported by or for supplying to industrial user Is exempt at import stage.
Taxability of fixed assets – Local DisposalSRO 727(I)/2011 dated 1 August 2011 • Fixed assets – not taxable • Immovable properties • Vehicles falling under Chapter 87 of PCT (not being stock in trade) • All other assets - taxable • Plant and Machinery - not taxable if • it is an imported plant & machinery that is not manufactured locally and has no compatible local substitutes • if sold to registered industrial regimes • Such plant and machinery is taxable if sold to commercial regimes or unregistered industrial regime - taxable.
Input tax claim for wholesalers & distributors SRO 564(I)/2012 • Section 8B of the Act restricts the claim of input tax to 90% of the output tax except for the following sectors excluded vide SRO 647(I)/2007: • electricity, gas, oil, zero rated supplies, commercial importers, wholesale cum retail outlets, wholesalers and distributors, etc. • Wholesalers have now been excluded through SRO 564(I)/2012 dated 26 May 2012 • This means the 90% limit of input tax claim will be applicable to wholesalers. • Distributors are however not affected.
Requirement of NTN or CNIC on Sales Tax Invoice Status of SRO 191(I)/2012 dated 23 February 2012.
Rates of duty changedFirst Schedule • Duty on cigarettes enhanced • Duty on Portland cement, aluminous cement, slag cement, super sulphate cement and similar hydraulic cements, whether or not coloured or in the form of clinkers reduced From Rs. 500 per metric ton to Rs. 400 per metric ton.
Withdrawal of excise dutyFirst Schedule The Bill seeks to withdraw duty on a number of goods, which are in nature lubricants and cosmetics with effect from 02 June 2012
Exemptions from FEDThird Schedule • The Bill seeks to include the following services in the Third Schedule:
Asset Management Companies • Currently under serial No.8 of Table II of the First Schedule to the FE Act, services provided by banking companies or non-banking financial companies are subject to FED at the rate of 16%. • The tax authorities created huge demands against asset management companies from 2007 onwards for payment of FED on the management fee charged by them on the grounds that asset management companies are covered under non-banking financial companies as defined in the Act. • This has been challenged and cases are pending at the appellate forum.
Asset Management Companies • It appears that in order to resolve this dispute, the Board has proposed insertion of an exemption in Table II of the Third Schedule to the Act from the charge of FED in respect of services provided by asset management companies with retrospective effect from 01 July 2007. • However this comfort will not be available to asset management companies located in Sindh in view of the provisions of the Sindh Sales Tax on Services Act, 2011 unless a similar exemption is granted.
Excise duty on air travelFirst Schedule, Table II • With effect from 1 July 2007, FED is leviable on tickets issued for International travel to and from Pakistan irrespective whether the ticket has been issued from Pakistan or elsewhere • The issue from 1 July 2007 to 30 June 2012 remains open
Fair & equitable practice of the law • Unreasonable interpretation of law • Achievement of the budgeted targets should not be the basis of creating tax demands • A new interpretation which deviates from existing practice should not be enforced retrospectively • Even handed treatment should be meted out – e.g. gains and losses • Input tax should not be disallowed because an active taxpayer has failed to deposit the output tax • Joint and several liability of registered persons is a draconian provision of law • Delay in tax refunds
