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
S. No.
Sales tax updates
Section of the Act effected
1
Assessment of tax and recovery of tax not levied or shortlevied or erroneously refunded
11 and 36
2
Supplies against International Tender
Fifth & Sixth Schedules
3
Higher sales tax rates abolished
SRO 644(I)/2007
4
Amendments in Sales Tax Rules, 2006
Rules 5, 7 & 12
5
Amendments made in Sales Tax Special Procedures
Rules, 2007
Rules 58E, 58F to 58MB
6
Input tax claim of wholesalers restricted
8B, SRO 647(I)/2007
7
Sales tax SROs amended - effective 02 June 2012
Various
8
Rescinding Notifications
Various
9
Recent introductions
Various
Page 3
Fiscal Budget 2013 – Sales Tax & FED Updates
Assessment & recovery of tax
Section 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
►
Page 4
“Assessment of Tax and recovery of tax not levied or short-levied or
erroneously refunded”.
Presentation title
Assessment & recovery of tax
Section 11
►
Major changes in the revised Section 11
Time limit for assessment & recovery of tax for inadvertence, error or
misconstruction, enhanced to 5 years from 3 years
The Commissioner will now have powers to grant extension for passing an
order for a period of up to 90 days instead of 60 days
SRO 555(I)/1996 dated 01 July 1996 has been rescinded enabling any
officer to carry out assessment and recovery proceedings under sections
11 and 36 as per the threshold amount assigned to each rank.
Page 5
Presentation title
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.
Page 6
Presentation title
Supplies against International Tenders
Fifth & Sixth Schedules
►
Major changes
Input tax on such supplies will no longer be available.
Exemption provided by SRO 551(I)/2008 dated 11 June 2008 has
been removed. Materials imported for manufacture of goods to be
supplied against international tender will be taxable w.e.f. 2 June
2012.
Rules 50A, 50B and 50C of Chapter VIIA to Sales Tax Rules, 2006
regarding zero rated supplies made against international tenders
have been revised to incorporate the change.
Page 7
Fiscal Budget 2013 – Sales Tax & FED Updates
Higher sales tax rates abolished
SRO 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.
The standard rate of 16% will now be applicable
on these items
Page 8
Fiscal Budget 2013 – Sales Tax & FED Updates
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.
Page 9
Fiscal Budget 2013 – Sales Tax & FED Updates
Amendments in Sales Tax Rules, 2006
SRO 589(I)/2012 dated 01 June 2012
►
Amendment in registration rules for sales tax – Rules 5 &
7
Rule
Description
Amendment
Rule 5
Application
for
registration
As per clause (c) of Rule
5, corporate persons had
the option to apply for
transfer of registration to
the Collectorate having
jurisdiction where the
place of business is
located.
The Board is also empowered
to transfer the registration to a
jurisdiction based on –
Page 10
• Registered office
• Place of business
• Place of manufacture
Fiscal Budget 2013 – Sales Tax & FED Updates
Amendments in Sales Tax Rules, 2006
SRO 589(I)/2012 dated 01 June 2012
►
Procedure for transfer of business is prescribed as follows – Rule 7
Transfer of business
From
Authorized office
Verification by
To
Individual
Spouse or
Children
Local Registration
Office (LRO)
Regional Tax
Office (RTO)
Individual
AOP
LRO
RTO
AOP
Corporate entity
(same ownership)
LRO
RTO/Large
Taxpayers Unit
►
►
►
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.
Page 11
Fiscal Budget 2013 – Sales Tax & FED Updates
Amendments in Sales Tax Rules, 2006
SRO 589(I)/2012 dated 01 June 2012
►
Blacklisting of taxpayers
Rule
Description
Amendment
Rule 12
Blacklisting
and
suspension
of
registration
highlighted the procedure of
blacklisting and suspension
of registration on the
grounds where the tax
authority had reasons to
believe that a registered
person had committed tax
fraud
Through the amendment, the
entire above procedure as laid
down in rule 12 has now been
substituted.
Page 12
Fiscal Budget 2013 – Sales Tax & FED Updates
Amendments in Sales Tax Special
Procedures Rules, 2007 SRO 592(I)/2012
►
The following amendments take effect from 02 June 2012:
Rule
Description
Proposed amendment
Rule 58E
Special
procedures for
payment of sales
tax by importers
– Filing of return
and audit
Commercial importers not
claiming refund of excess input
tax were excluded from audit
except with the permission of
the Board.
This exclusion has now been
withdrawn and commercial
importers whether or not claiming
any refund of excess input tax can
now be subject to audit.
Rule 58F to
Rule 58MB
Special
procedure for
steel melters, rerollers and ship
breakers
Chapter XI of the Sales Tax
Special Procedure Rules, 2007
outlined specific procedures for
payment of sales tax by steel
melters, re-rollers and ship
breakers.
An upward revision of rates of
sales tax along with certain
conditions has been prescribed.
Page 13
Fiscal Budget 2013 – Sales Tax & FED Updates
Sales tax SROs amended –
effective 02 June 2012
New
SRO
Category
SRO Amended
591
Zero-rated 811(I)/2009 dated
to exempt 19 September
2009
595
Exemption
granted/Ze
ro-rated to
exempt
551(I)/2008 dated
11 June 2008
granting sales tax
exemptions
Impact
import and supply of polyethylene and
polypropylene for manufacturing of mono
filament yarn and net cloth is now exempt
instead of being zero-rated resulting in nonadjustment of input tax.
Waste paper, exempted , it was taxable at 22%
Remeltable scrap, sprinkler and drip equipment,
spray pumps and nozzles granted exemption
instead of zero rating.
593
Zero-rating 1125(I)/2011 dated Scope of zero-rating granted to monofilament of
granted
31 December
up to 67 decitex.
2011
602
Zero-rating 549(I)/2008 dated
granted
11 June 2008
granting sales tax
zero rating
Page 14
Zero-rating granted on cotton seed oil if supplied
to registered manufacturers of vegetable ghee
and cooking oil.
Fiscal Budget 2013 – Sales Tax & FED Updates
Sales tax SROs amended - effective 02 June
2012
New
SRO
590
Category
Impact
No
utilization
1020(I)/2006 Minimum value addition sales tax of 10% on supply of
dated 02
computer hardware and parts no longer applicable on
October
commercial importers.
2006
No
utilization
849(I)/1997 Exemption from sales tax to imported industrial raw
material and other goods, if imported directly by the
manufacturers who are liable to pay turnover tax or are
engaged in manufacture of the goods other than taxable
goods.
308(I)/2008 Rates for repayment of sales tax on steel products
dated 24
exported from Pakistan have been increased.
March 2008
596
Rate
increase
597
Rate
increase
Page 15
SRO
Amended
345(I)/2010 Rates fixed for minimum value of locally produced billets
dated 24
and ingots supplied by registered persons opting to pay
May 2010
sales tax on ad valorem basis have been increased.
Fiscal Budget 2013 – Sales Tax & FED Updates
Sales tax SROs amended - effective 02 June
2012
New
SRO
Category SRO
Amended
604
Rate
reduced
313(I)/2006 Rate of sales tax reduced from 7% to 6% on the value of
dated 31
import of soyabean seed by solvent extraction
March 2006 industries.
605
Rate
reduced
69(I)/2006
dated 28
January
2006
608
Rate
reduced
Page 16
Impact
Rate of sales tax reduced from 15% to 14% on the value
of import of rapeseed, sunflower seed and canola seed
by solvent extraction industries.
Sales tax charged on import and supply of black tea
reduced to 5%.
Fiscal Budget 2013 – Sales Tax & FED Updates
Rescinding Notifications
SRO 594(I)/2012
Rescinded SROs
Description
103(I)/2005
Fixation of value of Potassic Fertilizers at import and local supply
stage for sales tax at Rs.4,610/- per metric ton.
Effectively taxed at 16% standard rate of sales tax.
15(I)/2006
Fixation of value of locally produced nitrogenous fertilizer, Calcium
Ammonium Nitrate (CAN) for sales tax at Rs.3,765/- per metric
ton.
Effectively taxed at 16% standard rate of sales tax.
Page 17
Fiscal Budget 2013 – Sales Tax & FED Updates
Amnesty Scheme
SRO 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.
Page 18
Fiscal Budget 2013 – Sales Tax & FED Updates
Amnesty Scheme
SRO 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
►
Page 19
Fiscal Budget 2013 – Sales Tax & FED Updates
Significant Pre-Budget Sales Tax
Amendments
.
Taxability of fixed assets
SRO 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.
Page 21
Conditions at import stage
• Registered manufacturers or
Industrial importers are required to
give post dated cheques covering
the sales tax amount which would
be returned after filing of a first
sales tax return after import of plant
and machinery.
• Commercial importers are required
to make an advance payment or
issue a bank guarantee / pay order
of the sales tax amount which
would be returned or refunded upon
provision of next supply to a
registered manufacturer or
industrial user.
Fiscal Budget 2013 – Sales Tax & FED Updates
Taxability of fixed assets – Local Disposal
SRO 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
►
Page 22
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.
Fiscal Budget 2013 – Sales Tax & FED Updates
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.
Page 23
Fiscal Budget 2013 – Sales Tax & FED Updates
Requirement of NTN or CNIC on Sales Tax
Invoice
Status of SRO 191(I)/2012 dated 23
February 2012.
Page 24
Fiscal Budget 2013 – Sales Tax & FED Updates
Fiscal Budget 2013 – Federal Excise
Table of contents
Updates in Federal Excise laws
S. No. Federal Excise updates
Effected sections
1
Increase in rates of duty
First Schedule
2
Excise duty on travel by air
First Schedule
3
Exemptions granted from excise duty
Third Schedule
4
Asset management companies
Third Schedule
5
Withdrawal of excise duty
First Schedule
6
Other updates
Various
Page 26
Fiscal Budget 2013 – Sales Tax & FED Updates
Rates of duty changed
First 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.
Page 27
Fiscal Budget 2013 – Sales Tax & FED Updates
Withdrawal of excise duty
First 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
Lubricating oil
Base lube oil
Perfumes
Beauty or make-up preparations
Page 28
Fiscal Budget 2013 – Sales Tax & FED Updates
Exemptions from FED
Third Schedule
►
The Bill seeks to include the following services in the
Third Schedule:
Live stock insurance
Services provided by Asset Management
Companies w.e.f. 01 July 2007.
Page 29
Fiscal Budget 2013 – Sales Tax & FED Updates
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.
Page 30
Fiscal Budget 2013 – Sales Tax & FED Updates
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.
Page 31
Fiscal Budget 2013 – Sales Tax & FED Updates
Excise duty on air travel
First 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
Page 32
Presentation title
Substituting Clause (b) of serial
No.3 of Table II of the First
Schedule to the FE Act as under:
Services provided or rendered in
respect of travel by air of the
passengers embarking on
international journey from Pakistan.
Economy and
economy plus.
Three thousand
eight hundred
and forty rupees.
Club, business
and first class
Six thousand
eight hundred
and forty rupees.
Other updates
Excise Duty on Services
Pursuant to the 18th Amendment, it is
anticipated that the Punjab provincial
government is due to establish its own
authority for administering and collecting sales
tax on services in the province of Punjab
Page 33
Fiscal Budget 2013 – Sales Tax & FED Updates
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
Page 34
Fiscal Budget 2013 – Sales Tax & FED Updates
Thank you