Income Tax Bar Association Karachi WORKSHOP ON SALES TAX Pearl Continental Hotel, Karachi 21 – 22 July 2005

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July 2005 WRAP-UP OF WORKSHOP Issues & Recommendations By SAQIB MASOOD President Income Tax Bar Association

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July 2005 WHAT HAS BEEN DISCUSSED  Core Concepts  Registration  Determination of tax liability  Book keeping, records and returns  Penalties and additional tax  Audit, rules and Special procedures  Adjudication, appeals and ADR  Provincial sales tax on services

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July 2005 ISSUES AND RECOMMENDATIONS  Sales Tax Rate to be gradually reduced to 10%  Present sales tax laws – a combination of VAT and certain presumptive VAT which is creating economic disparities – rationalization required to remove disparities  Taxable supplies includes number of categories of registered person - Identification to categories not more required and should be removed  Leasing & Hire Purchase – Finance & operating lease excluded from ‘supply’ but certain provisions are for ‘Hire Purchase’ – Ambiguity to be sorted out

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July 2005 ISSUES AND RECOMMENDATIONS  Islamic mode of financing –Issue of notional supply needs to be clarified  Free samples – For ‘supply’ disposition should be for consideration – Clarification needed for non-taxability of free samples  Tax fraud – concept emanates from ‘intentional act’ – determination of ‘intentional’ & ‘unintentional’ act is practically not possible – Definition therefore should be rationalized

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July 2005 ISSUES AND RECOMMENDATIONS  Registration –Time limits prescribed for registration / rejection, practically not followed – Law should provide for provisional registration on filing of application; –Likewise, time limits for de- registration are not followed – Provisional de-registration should be made on filing of application –Time limit for consolidation of registrations should be provided or provision consolidated registration number be issued on filing of application

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July 2005 ISSUES AND RECOMMENDATIONS  Registration – cont’d –Period for determination of threshold in the case of manufacturer & retailer should be based on financial year or twelve months preceding to last two months –Compulsory registration process needs rationalization to avoid erroneous registration –Clarification about jurisdiction for registration needed for persons having more than one manufacturing unit where place of business and unit are different

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July 2005 ISSUES AND RECOMMENDATIONS  Registration – cont’d –Section 13 provides option for voluntary registration but rules have not been prescribed– Anomaly be removed –Importers not engaged in taxable activity are not required to be registered but faces difficulty in clearance of imports without registration – Clarification is needed in this regard

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July 2005 ISSUES AND RECOMMENDATIONS  Retailers – –Tax on purchases is against basic concept of sales tax – Legislative corrections are required –Only purchase of taxable goods should be subject to sales tax –Clarification for filing of return should be made for retailers having presumptive and non-presumptive sales

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July 2005 ISSUES AND RECOMMENDATIONS  Advance Receipts – Form should be revised to accommodate general advances where future supplies are not identifiable at the time of advance payment  Additional tax – should be applicable on willful default and not otherwise  Penalty – In certain cases, input tax adjustment is not allowed besides levy of penalty – There should be one repercussion for one offence

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July 2005 ISSUES AND RECOMMENDATIONS  Services Tax –Input tax should be allowed on ‘paid or payable’ basis instead of ‘paid’ basis, as available in other cases –There is no requirement of routine audit if sales tax paid by custom agents on benchmark level. If paid twice or more the benchmark level audit is prescribed in every three years which is an anomaly & should be clarified –Availability of input tax paid on courier charges, other than in the case of registered exporter, needs further clarification

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July 2005 ISSUES AND RECOMMENDATIONS  Services Tax –Input tax on telephone bills where the sales tax registration number is not mentioned – needs clarification –We presume that threshold for service providers is Rs. 5 million as in the case of manufacturers and retailers – Please issue clarification –We presume that the services charges receivable from person outside Pakistan are zero rated – Please clarify

Income Tax Bar Association Karachi Workshop on Sales Tax Pearl Continental July 2005 ISSUES AND RECOMMENDATIONS  Alternate Dispute Resolution –Time should be provided for resolution of dispute as well as constitution of committee –ADRC should be empowered to pass the order –Time limit should be provided for passing the order