SPECIAL PROCEDURES Deviation from VAT Mode

1. SPECIAL PROCEDURES Deviation from VAT Mode Presented by: Mehmood A. Razzak Partner 103-104, Amber Estate, Main Shahrah-e-Faisal, Karachi Phone: 021 – 4535712-3 Fax: 021 – 4546291 E-mail: mim@mimandco.com

2. COMMERCIAL IMPORTERS • Input tax is payable on assessed value @ 15% • Sales Tax @ 15% is payable on minimum value addition at the time of making payment of Custom Duty and Sales Tax as above. • Minimum Value addition shall be: • 10% in case of the imports (except items falling in Third Schedule) • 15% in case of Third Schedule items • 5% in case of supply of locally manufactured goods (other than those the prices of which are fixed by the Government). • Importer is now required to file quarterly return by 15th of next month following the quarter ended. • The difference between sales tax on actual value addition and prescribed value addition, in case of local supply of commercial imports, shall have to be deposited alongwith quarterly returns.

3. COMMERCIAL IMPORTERS(Contd…) • In addition to quarterly return, the commercial importer will also have to submit quarterly and annual statement of imports and supplies made. Non-compliance will attract penal actions. • There is no exemption of audit. The collector may ascertain the need of auditing records of any importer on the basis of his compliance with the rules. • Under any circumstances, importers are not entitled to refunds.

4. RETAILER • The rules are uniformly applicable for all sorts of retailers. • A retailer having annual turnover, taxable or otherwise, of Rs. 5 Million and above is required to be registered. • The applicable rate under this scheme is 3% of the value of taxable supplies (2% sales tax and 1% income tax) a final discharge of tax liability in case of non-corporate retailers. • In case of Corporate Retailers, 1/3 shall be treated as withholding income tax adjustable against final tax liability.

5. RETAILER(Contd…) • Minimum value addition in case of retailing the following items has been prescribed. • Motorcycles 4% • Rubber Tyres 3% • Mild Steel Products Rs. 1000/= PMT • Electronic Gods of Domestic Use (Pakistan Origin) 3% • Flat Rolled Products including Tin Plate and Tin Free Steel 4% • Sanitary Wares and Tiles 4% • No adjustment of input tax and no claim of refund are allowed. • Return shall be filed by 15th day of the following month alongwith payment of tax due. • The Board is empowered to make use of Fiscal Electronic Cash Registers (FECR) a compulsory feature.

6. WHOLESALE CUM-RETAILERS • This rule shall apply to the chains of: • wholesale cum-retail outlets (apparently franchised or branded outlets); • engaged in bulk import and supply of consumer goods • on both wholesale and retail basis. • to the general body of consumers. • There is nothing much to be called special in this rule except for mandatory requirement of installation and use of FECR for issuance of serially numbered sales tax invoice / bill. • In addition to records prescribed under Section-22, a wholesale cum-retailer shall maintain record of daily transactions at the end of each business day.

7. JEWELLERS • The rule applies to jewellers, goldsmiths and persons engaged in: • Manufacture or supply of ornaments (both on ownership or labour / service charges basis). • Supply of ready-made ornaments. • Minimum threshold of Rs. 5 Million is applicable in case of manufacturer and retailer. • Supplier of ready-made ornament has to get himself registered irrespective of his turnover. • Zargar is not required to be registered. (Means a person who is not engaged in sale of ornament but in making process only).

8. JEWELLERS(Contd…) • Value addition on account of services should not be less than 10%. • No adjustment of input tax is allowed. • Sales tax invoice has also been prescribed. • Following records are prescribed to be maintained by a jeweller: • A register of goods sold • Copies of Sales Tax Invoices • Utility bills, rent receipts, wage payment records and proof of all business expenditures. • Copies of monthly returns. • Purchase invoices / memos. • Audit of the above records shall be conducted once a year. • Jewellers Association / Trade bodies shall be responsible for their members registration in case their turnovers exceed the threshold.

9. ELECTRIC POWER COMPANIES • Every electricity generation, transmission and distribution company licensed by NEPRA has to get itself registered under this rule. (This include a distributor, dealer and agent, IPP, Public and Private Sector Projects, Importers of Electricity, etc..) • Sales tax shall be charged @ 15%. • Value of Supply for KESC, WAPDA etc., shall be the price of electric power including charges, surcharges, late payment surcharges, rents, commissions, duties, taxes etc., excluding the amount of sales tax. • Value of supply, in case of an IPP, HUBCO or KAPCO, shall be the amount received on account of Energy Purchase Price only. • In case of disputes, a certificate issued by WAPDA or KESC shall be deemed to be a the Credit Note for IPP.

10. ELECTRIC POWER COMPANIES (Contd…) • Sales tax levied and collected shall be deposited on “accrual basis” (earlier WAPDA and KESC had to deposit on collection basis). • WAPDA and KESC shall adjust input tax paid relating to purchases of preceding tax period. • Others will follow the normal course. • The registered consumer shall be entitled to claim input tax paid on electricity, evidenced by the electricity bill in the tax period in which the bill is paid. Provided it should contain registration number and business address of the consumer as declared to the collector. • Due dates of filing returns: • WAPDA and KESC - 21st day of the following month • IPPs - 25th day of the following month • Others - 15th day of the following month • Records prescribed u/s 22 shall be maintained. Every bill should contain registration number of the consumer and the amount of sales tax, if applicable. Issuance of computer generated sales tax invoices is also allowed.

11. NATURAL GAS COMPANIES • The rule also applies to persons involved in the supply of Natural Gas including CNG and LPG. • The return shall be filed by 15th of the following month except in case of companies supplying directly to consumers charging bill on monthly basis, the return shall be filed by 15th of the second following month. • Late payment surcharge is excluded from the value of supply. • The sales tax is chargeable at open market price even if supplied free of charge. • No specific conditions with respect to input tax adjustments in the hand of Gas Companies.

12. NATURAL GAS COMPANIES(Contd…) • The consumer can adjust input tax on payment basis, irrespective of the tax period. • The bill should contain registration number and business address of the consumer in order to constitute a valid invoice. • No specific conditions with respect to record keeping. • Gas transmission and distribution companies are not required to maintain records of daily stocks and sales.

13. SUPPLY OF SUGAR TO TRADING CORPORATION OF PAKISTAN (TCP) • TCP will pay only value of sugar to the mills at the time of successful grant of tender against commercial invoice issued by the mill. • The mill will issue a sales tax invoice at the time of actual delivery. At this time, TCP will pay the amount of Sales Tax to the mill. • In case of delivery for export, mill will issue zero-rated tax invoices. • The mill will disclose its activities in the month of issuing invoices. • TCP shall submit a monthly statement to the collector for the purpose of cross verification of supplies declared by the sugar mills. • This rule deviates from basic principles of charging sales tax, tax period and filing of return.

14. SUPPLY OF FOOD • This rule applies to food, drinks and other eatables supplied by hotels restaurants clubs, caterers, parlours, kitchen and other similar establishments (both for consumption inside the premises or supplied outsides). • The rate of tax is 15% (tax fraction). • Minimum threshold of Rs. 5 million is applicable. • Due date for filing return is 15th of the next month. • In case of clubs charging bill on monthly basis, due date of filing returns is 15th of the second following month.

15. SUPPLY OF FOOD (Contd…) • No specific conditions with respect to input tax adjustment. • All prescribed records shall be maintained with addition of menu card showing prices of each item or combination of food. • The price as per menu card shall be inclusive of sales tax and shall be taken as minimum value of supply. • Use of Fiscal Electronic Cash Register or issuance of computerized invoices also allowed. • Daily gross take should be recorded and maintained.

16. TAXABLE SERVICES • This rule applies to persons providing services under the Provincial Laws e.g. advertisers, courier companies, custom house agents, hotels, ship-chandlers and stevedores. • No minimum threshold with respect to turnover is available. • Sales Tax @ 15% is leviable. • Due date of filing return is 15th of the following month. • No specific conditions with respect to input tax adjustment. • No specific requirement with respect to maintenance of records. • Issuance of computer generated invoices is allowed.

17. TAXABLE SERVICES(Contd…) Advertisement on Television and Radio • Value of taxable services means money consideration received or the gross amount charged for broadcasting or telecasting any advertisement, including Federal and Provincial levies. • Client can adjust input tax paid under this rule, to whom sales tax invoice is issued and routed through the advertising agency, subject to the following conditions: • Invoice wise payments are made through banking channels. (the term crossed is not used). • He hold service providers invoices that are in accordance with the prescribed specimen. • Provisions of section 8 are observed.

18. SPECIFIC PROVISIONS Custom Agents • Value of supply for custom-house agent shall be the amount received for providing services only. It shall be exclusive of any amount received on account of transportation, demurrage, wharfage, duties, excise, etc., which the agent pays on behalf of his clients. • Minimum values of various services offered by custom house agents are prescribed ranging from Rs. 500 to Rs. 2200. • Sales tax numbers and licenses number should be quoted on Goods Declaration. • Sales tax charged by the agent is adjustable as input tax in the hand of the client.

19. SHIP-CHANDLERS • Value of supply shall be the amount received on account of services provided including all Federal and Provincial levies. • It shall be exclusive of any amount received as re-imbursement of payments made on behalf of the client.

20. STEVEDORES • Sales tax shall be levied on the basis of volume of cargo loaded on or discharged from the vessel. • Rates of sales tax range form Rs. 170 per move to Rs. 5-20 per metric ton. • The liability to pay sales tax has been established on the stevedores container terminal operators, commercial tank terminal operators or bulk terminal operator, as the case may be depending on the movement of container. • Input tax adjustment or refund is not allowed. • Return to be filed by 15th of the next month. • Jurisdiction lies with LTU in Karachi.

21. COURIER • Sales tax @ 15% shall be charged on courier services provided. • Sales tax shall not be payable in case: • The booking of shipment was either cancelled or returned to the client provided that the relevant invoice is cancelled and a credit note is issued to that effect. • The internal office mail is sent by the courier company to any of its offices by itself. i.e. without engaging other courier company. • Exporters can claim refund of input tax paid under this rule.

22. STEEL MELTERS AND RE-ROLLERS • Sales Tax @ 15% is leviable. • Production of steel melter shall be calculated at the rate of one metric ton ignotes or billets per 800 units of electricity consumed. • Minimum value addition shall be Rs. 3,600 per metric ton where the sales tax invoice of local scrap is not available. • Minimum value addition shall be Rs. 2400 per metric ton where the sales tax invoices or GD (for imported) scrap or invoice issued by PSM is available. Adjustment of input tax u/s 7 is allowed.

23. STEEL MELTERS AND RE-ROLLERS(Contd…) • In case of combination of scrap (i.e. imported, with invoice and without invoice) the liability shall be determined proportionately. • Value of billets produced by PSM is fixed at Rs. 22,000/= $ PMT. PSM is also allowed to adjust input tax. • Production of steel re-roller shall be calculated at the rate of one metric ton MS product per 130 units of electricity consumed. • Minimum value addition in case of re-rollers shall be Rs. 1,800 per metric ton.

24. STEEL MELTERS AND RE-ROLLERS(Contd…) • No specific requirements with respect to maintenance of records or filing of return. • Detail of production is required to be submitted in of the prescribed format. • The relevant association shall ensure the payments of sales tax by their members and assist the concerned collectorate for enforcement and recovery.

25. ADVERTISING AGENCIES • The rule applies to: • Registered advertising agency, being a member of Pakistan Advertising Association, who supplies or supervises the supply of printed material. • Registered printer who supplies printed materials through an advertising agency. • Threshold of minimum turnover is not applicable in case of advertising agency. • Sales tax shall be charged @ 15% on. • Total value of printed and promotional material inclusive of commission. • If printing is done by a registered printers, on the amount of commission only.

26. ADVERTISING AGENCIES(Contd…) • No specific conditions with respect to input tax adjustment, invoicing and record keeping, while computer generated sales tax invoice is allowed. • Returns to be filed by 15th of the next month. • In case the advertising agency does not opt for registration, the sales tax on commission shall be paid by the printer who shall issue sales tax invoice for the entire value indicating commission separately. • The relevant association are held responsible for compliance by its members.

27. MANUFACTURERS OF BISCUITS,CONFECTIONERY AND SNACKS • Supply of locally manufactured biscuits, confectionery and snacks fall in the Third Schedule. • Sales tax shall be levied in two phase. • @ 15% on ex-factory price • @ 15% on a value addition of 12% in lieu of sales tax payable on the basis of printed retail price. • Sections 7, 8 and 73 shall be applicable.

28. VEHICLES • The rule applies to: • Manufacturers; • Importers; and • Dealers of vehicles, (both local, imported, new and used). • Manufacture shall declare full particulars of his dealers to the Collector who shall ensure that no dealer remains unregistered. • Manufacture shall not supply any vehicle unless, VIN chip is affixed to the vehicle (as may be specified by the National Database and Registration Authority). • No booking shall be made by the manufacture or importer through a dealer unless full particulars of dealer and buyer are mentioned on the booking document. This shall not apply on import of vehicle under Personnel Baggage, Transfer of Residence or Gift Scheme.

29. VEHICLES(Contd…) • Sales tax invoice shall be issued in the name of dealer, who in turn shall issue in the name of consumer, or directly in the name of consumer as the case may be. • In case vehicle is invoiced directly to consumer through a dealer, the dealer shall issue a delivery advice-cum-invoice. • Manufacture and importers shall declare to the collector the rates of commissions payable to the dealers. • Input tax adjustment shall be admissible as per normal regime except after such date as specified by the Board where VIN chip is not affixed. • Sales tax shall be charged @ 15%. • Dealer shall be liable to charge sales tax on commission that remain uncharged by the manufacture or importer.

30. VEHICLES (Contd…) • Exchange of vehicles, with no cash involvement, between the dealers shall not attract to levy of sales tax until actually sold to the consumer. • Returns shall be filed on 15th of the next month. • A dealer-wise consolidated statement shall also be filed by the manufacture and importers by 20th of each month. • In addition, a monthly consolidated statement of vehicles sold directly to the consumer is also required to be filed. • No specific requirements with respect to maintenance of records.

31. VAT MODE IN PRESENT PREGIME • Levy of sales tax at every change of hands. • Value addition at every stage should attract sales tax. • The tax payers are ultimate consumers while intermediaries are registered persons. • Registered person is entitled to deduct tax paid (input tax) from tax charged (output tax) and pay the difference (representing tax on value addition) to the ex-chequer. • Claim refund in case of excess input tax. • Both input tax paid or payable (accrued) shall be admissible.

32. VAT MODE IN PRESENT PREGIME(Contd…) • Input tax should relate to goods / services used in supplies made or to be made. • Filling of accurate returns by the due dates. • Time of supply is earlier of the delivery of goods or amount received.

33. DEVIATION • Special procedures have something special deviating from the normal regime e.g. • Minimum value addition in which case there is no price discovery. • Time of supply, at times, shifts from earlier of payment or delivery to delivery only. • Admissible period of input adjustment. • Levy of sales tax at reduced rates in which case input tax adjustment becomes inadmissible. • Too much shift to statute based on procedures as against statute based on principals. Ultimately leading to confusion.