Income Tax Bar Association Karachi WORKSHOP ON SALES TAX Pearl Continental Hotel, Karachi 15 – 16 July 2005

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July AUDIT, RULES & SPECIAL PROCEDURES By ADNAN AHMAD MUFTI Partner Shekha & Mufti, Chartered Accountants

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July AUDIT, RULES & SPECIAL PROCEDURES  Audit Suspended todate except by DRRA  Modes of Audit of Sales Tax Records Routine Audit Investigative Audit Audit by Special Auditors  Sales Tax Rules 2005 Blacklisting & Suspension of Registration Credit and Debit Note Apportionment of Input Tax  Sales Tax Special Procedures Rules 2005 Minimum value addition by importers Minimum value addition by retailers Sales Tax on Electric Power & Gas Issuance of Tax Invoices against Advance Payment Receipt

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July AUDIT, RULES & SPECIAL PROCEDURES MODES OF AUDIT

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July AUDIT, RULES & SPECIAL PROCEDURES Routine Audit  At any time, but once a year, a registered person may be asked to produce both manual or computerised record lying in his possession or possession of his agent  Audit Observation to be replied in Fifteen (15) Days  Audit report, carrying quantification of charges or taxes, issued  100% Penalty waived if unpaid principal tax alongwith default surcharge is paid before receipt of notice of audit  75% penalty waived if unpaid principal tax alongwith default surcharge is paid at any time before issuance of show cause notice

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July AUDIT, RULES & SPECIAL PROCEDURES Routine Audit Monitoring, Control and Procedure  Audits selected through Computer Programming  Collector / Additional Collector may also select audits manually based on CBR’s directives  A particular audit team cannot audit the same registered person more than once in 2 years  Audit Notice to be given to taxpayer 15 days before the scheduled date of audit  Audit to be completed within 3 to 4 days unless extended by Assistant Collector in writing

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July AUDIT, RULES & SPECIAL PROCEDURES Routine Audit Monitoring, Control and Procedure  Audit reports prepared by auditors to be approved by Deputy / Assistant Collector and finally by Additional Collector within 14 days of commencement of audit  Audit report to be sent to taxpayer within 4 weeks  All correspondence, notices and orders sent to the registered persons to bear the seal and signature with contact details of the officer issuing it.  Auditors bound to affix their signatures and official seal on records checked during audits  Audit Completion Certificate as per STGO

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July AUDIT, RULES & SPECIAL PROCEDURES Investigative Audit  The Collector or the authorized officer by CBR can inspect: goods and stocks records, data, documents and correspondence accounts and statements utility bills and bank statements information regarding nature and sources of funds or assets with which the business is financed any other records or documents  The aforesaid data can also be taken into custody by the relevant officer  All government departments, local bodies, autonomous bodies, corporations bound to supply requisite assistance to such officer in connection with the investigation

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July AUDIT, RULES & SPECIAL PROCEDURES Audit by Special Auditors  Audit by Chartered Accountants of Cost & Management Accountants  Audit to be conducted as per Terms of Reference  Special Auditor may conduct audit of records already examined by Department  Audit of Retailer could involve surveillance, video filming  Retailer can opt for Special Audit

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July AUDIT, RULES & SPECIAL PROCEDURES Sales Tax Rules 2005

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July AUDIT, RULES & SPECIAL PROCEDURES Blacklisting & Suspension of Registration  Collector may blacklist registration of registration person if he has evidence that the supplier has issued false invoices, or evaded tax or has committed tax fraud  This troubles both the supplier and the buyer  CBR Web Site carries names of blacklisted persons and respective Collectorate  What to be done to avoid hassle ?

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July AUDIT, RULES & SPECIAL PROCEDURES Credit and Debit Note and Destruction of Goods Rules  Eventualities prescribed in Section 9 to be catered through these rules  Time limit allowed is 180 days. Can be extended for another 180 days  No need to issue credit note if the buyer is an unregistered person  Goods unfit for consumption need to be destroyed  The time limit of 180 days not applicable where supplier has paid entire tax on advances

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July AUDIT, RULES & SPECIAL PROCEDURES Apportionment of Input Tax  Why apportionment ?  What is “Residual Input” ?  The concept of “Provisional Adjustment” !  Final adjustment to be made at the end of each financial year

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July AUDIT, RULES & SPECIAL PROCEDURES Sales Tax Special Procedure Rules 2005

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July AUDIT, RULES & SPECIAL PROCEDURES Payment of Sales Tax by Commercial Importers on Value Addition  Registration status no more a relief !  10% to registered persons who import goods for subsequent supply to other person  Import for self use outside the ambit of tax under the special procedure  Deemed Supply at the Time of Import  If importer had sold his products at a higher value addition in any tax period during last year, he shall pay tax at such high rate

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July AUDIT, RULES & SPECIAL PROCEDURES Payment of Retail Tax on Value Addition  Minimum value 10%  Incidence of tax shifted to purchase instead of sales  Certain Retail Sectors given benefit of low percentage of value addition  Audit once a year  Retailer declaring 6% increase in his purchases from that of last year exempted from audit

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July AUDIT, RULES & SPECIAL PROCEDURES Payment of Sales Tax on Electric Power & Natural Gas In case of registered consumers, the utility bill issued by distribution company shall be treated as a tax invoice Registered consumers entitled to claim input tax against aforesaid invoices in the tax period in which the bill is paid provided the bill contains registration number and address of the business premises declared to the Collector of such consumer

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July AUDIT, RULES & SPECIAL PROCEDURES Issuance of Tax Invoices against Advance Payment Receipt  “Advance Payment Receipt” means the receipt issued by the registered person at the time of receipt of advance  No tax payable at the time of issuance of tax invoice  Input Tax admissible on the basis of Receipt  Prescribed Format of Receipt not in agreement with section 2(44), Rule 110 and STGO

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July AUDIT, RULES & SPECIAL PROCEDURES THANK YOU !