Audit, Assessment,
Investigations, Refunds,
Withholding Sales Tax,
etc.
By: Mazhar Saleem Shah, FCMA
04 November 2015
22 March, 2016
Contents of the Presentation

Audit of Sales Tax Records

Assessment & Adjudication

Investigation

Suspension and Blacklisting

Refunds

Withholding of Sales Tax

Offences, Default Surcharge & Penalties
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
2
Audit of Sales Tax Records – Types of Audits

Routine audit of records – Section 25 of STA

Pre or Post Refund Audit – Chapter-III of Sales Tax Rules, 2006

Investigation/Enquiry under Section-38 & 38B of STA

Audit by Special Audit Panel under Section 32A of STA

Audit / Investigation by Directorate General of Intelligence and Investigation-IR
[refer SRO.116(I)/2015, dated 9 February 2015].
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
3
Tax Audit – Section 25 of Sales Tax Act, 1990

CIR or his authorized Tax Officer can requisition statutory records or access the
records / computers.

On the basis of records, audit can be conducted once in a year (only once during
a financial year except when exceptional circumstances to re-audit prevail).

Records can be re-audited, if audited previously by Auditor General of Pakistan

Order to be passed under Section 11 after completion of audit, as per procedure
laid down under Para 39 of STGO No. 3 of 2004, dated 12 June 2004

Waiver of penalty on voluntary discharge of tax liability during the course of audit
and adjudication (100%, 75%, no-waiver)

Section 28 in Sindh ST Act is para-materia to S-25 of STA, however waiver of
penalties in voluntary compliances at slightly different rates (100%, 80% & 50%)
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
4
What triggers the Sales Tax Audit
Basis of Departmental Audit [under Rule 3 of Audit Rules-PRA]

Irregular or abnormal fluctuations in input tax adjustments including carry
forwards;

Non or short payments of tax amounts declared on the monthly returns or other
declarations;

Unusual variations in inventories;

Habitual tendency of filing short or misfiled returns;

Sudden or unexpected downward changes in turnover; and

Other cogent factor evident from the taxpayer’s computer profile over doubts of
tax evasion
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
5
Conduct of Sales Tax Audit – STGO No.3/2004

Audit Report be the Addl. Commissioner within 14 days

Audit report be forwarded to registered person within 4 weeks, this may be in the
form of contravention report or audit observations notice

Audit completion certificate is required to be issued, which is generally avoided
by the authorities, yet prescribed under STGO
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
6
Audit by Special Audit Panels – Section 32A

Board can appoint SAP comprising two or more members of IR officers,
CA/CMA firms, any designated person by Board (expert in forensic audit)

SAP to be headed by a chairman who shall be an officer of IR.

Absence of any member of SAP may not invalidate the audit proceedings

Scope laid down under Chapter VI of the Sales Tax Rules, 2006
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
7
Assessment of tax – S-11 of STA

Section 36 of STA was omitted vide FA-2012 and merged in S-11.

Four situations are separately dealt u/s 11 of STA viz-a-viz:

If return is not filed and short-payment is due to any miscalculation.

Non-payment or short payment of tax or claim of inadmissible refund for
reasons other than miscalculation.

If tax shortfall or claim of inadmissible refund is due to some collusion or
deliberate act.

If tax shortfall or claim of inadmissible is by reason of any inadvertence,
error or misconstruction.

It’s difficult for tax officer to distinguish the cases of willful & non-willful
evasions

Show cause is mandatory in all above situations, which can be issued within 5
years of relevant date i.e. the time of payment of tax or when the refund was
issued.
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
8
Assessment of tax – S-11 of STA

Taxpayer must be awarded an opportunity of being heard.

Order-in-Original must be issued within 120 days, extendable by CIR upto 90
days, excluding the time lapsed due to stay proceedings or ADRC or
adjournment applied by the taxpayer [not beyond 60 days].

If taxpayer fails to file a return, the tax officer is empowered to determine the
tax liability of the registered person. Procedure for determination of minimum
tax liability described under Sales Tax General Order No.3 of 2004, dated 12
June 2004.

Definition of ‘tax fraud’ describes the cases which tantamount to deliberate
evasion of tax. If conditions are not satisfied, the tax officer cannot impose
excessive penalties on the registered person.
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
9
Key considerations

Audit observation needs to be responded quite seriously to avoid process of
adjudication. On the other hand, it helps to reduce the demand prior to
issuance of show cause notice.

It is not obligatory upon tax officers to issue audit observation prior to issue of
show cause notice.

Show cause notice be examined first on technical grounds like time limitation,
jurisdiction, etc. and then on merits.

Imposition of default surcharge and penalties should always be challenged if
the tax officer has not proved the malafide intent on the part of taxpayer to
evade the tax.

Reply to show cause notice generally emerges as a vital source to build up a
strong case before the appellate / litigation forums.
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
10
Investigations – S-38 of STA
•
Section 25 itself provides authority of initiating investigation under Section 38 of
STA in cases of tax frauds.
•
Wide discretion of authorized officer acting on behalf of the Board or
Commissioner to access business premises, stocks, records, etc.
•
Onus lies on FBR / CIR to prove the tax fraud according to definition.
•
Investigations are generally assigned to DG-I&I offices of FBR.
•
Section 38 does not provide authority to adjudicate cases, as such
assessment/recovery can be enforced through Section 11 of STA.
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
11
De-registration, Blacklisting & Suspension
• Under S-21 of STA, Board or authorized officer can de-register any RP
• In case of issue of fake invoices or tax fraud, CIR can blacklist the RP or
suspend the registration in accordance with prescribed procedure
• No input tax on invoices during the period of suspension
• Once blacklisted, the input tax or refund on invoices issued shall be rejected
after adjudication
• Refunds can be blocked and investigative audit may be directed
• Rule 12 of Sales Tax Rules, 2006 provides detailed procedure on blacklisting
and suspension
• Non-Active Taxpayer cannot file GDs, issue tax invoices, claim input tax or avail
any concession. Other persons directed to avoid purchases from Non-Active
Taxpayers.
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
12
Refunds
13
Refund - S-10 & S-66 of ST Act
Refund Situations
Input tax
exceeds
from
output tax
on
account
of zero
rate
supplies
Input tax
arise due
to export
[S-10];
[S-10];
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
Unadjust
ed Input
tax
against
supplies
other
than zero
rated or
export
[S-10];
Input tax
accumula
ted due to
restriction
provided
under
Section8B [S-10];
Sales tax
paid
through
inadverte
nce, error
or
misconce
ption
[S-66];
Input tax
not
claimed
within
relevant
tax period
[S-66]
Refund procedures– ST Rules, 2006

Refund is claimed through monthly sales tax return [Rule-28];

Refund claim through filing of sales tax return is considered valid only after
furnishing of requisite data in the format prescribed in Refund claim Preparation
Software [RCPS] alongwith supporting documents [Rule-28];

RCPS data and supporting documents are required to be furnished within 120
days of the filing of sales tax return [Rule-28];

On submission of Refund claim, Refund Receipt Section shall ensure
completeness of the data and then upload in the system [Rule-29];

Uploaded information are processed to determine and sanction the amount of
refund [Rule-30].
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
15
Refund procedures–ST Rules, 2006
Restriction on the input tax refund [Rule 33]
Refund to the claimant shall be paid to the extent of the input tax paid on
purchases or imports that are actually consumed in the manufacture of goods to be
exported or supplied at zero percent rate or at reduced rates under five export
sector regime.
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
16
Refund procedures– Rule 34 of ST Rules, 2006
Time period to claim refund
 When Input tax remain unadjusted for a minimum consecutive period of 12 month
except in following cases:
 Any time for following persons:

five sectors mentioned in SRO 1125 dated 31 December 2015,

gas transmission and distribution companies,

manufacturer of fertilizers,

electric power producers and electric power distribution companies
 When Input tax remain unadjusted for a minimum consecutive period of 3
month in case of Plastic, paper and steel sector;
 After the end of accounting year or financial year in case input tax not adjusted
due to restriction provided in 8B of ST Act
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
17
Sales Tax Withholding
Sales Tax Withholding In Pakistan Under
Federal ST , Sindh and Punjab ActsSales Tax Withholding in Pakistan
Sales Tax Special
Procedure
(Withholding)
Rules, 2007
[Federal WHT]
Issued by
FBR
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
Sindh Sales Tax
Special
Procedure
(Withholding)
Rules, 2015
Punjab Sales Tax
on Services
(Withholding)
Rules, 2015
[Sindh WHT]
[Punjab WHT]
Issued by
SRB
Issued by
PRA
Sales Tax Special Procedure (Withholding)
Rules, 2007
Withholding Agent [Purchaser]
Supplier [whose GST to be withheld]
Federal Govt; Provincial Govt;Autonomous body
Public sector organization
Registered status of Supplier
Rate of GST Withholding
Wholesaler, dealer or distributor
1/10th of Sale Tax Amount
Others
1/5th of Sales Tax Amount
N/A
17% or at the applicable rate of
sales tax
Wholesaler, dealer or distributor
1/10th of Sale Tax Amount
Others
1/5th of Sales Tax Amount
N/A
1% of gross value of supplies
Wholesaler, dealer or distributor
1/10th of Sale Tax Amount
Others
1/5th of Sale Tax Amount
N/A
1% of gross value of supplies
Registered Person
Unregistered Person
Companies as per Income Tax Ordinance, if
registered with sales tax, excise or income tax
Registered Person
Unregistered Person
Registered Person
Persons Registered under sales tax as Exporter
Unregistered Person
Recipient of service of advertisement, who are
registered for sales tax
Registered Person
Unregistered Person
N/A
Applicable rate of sales tax
Applicable rate of sales tax
EXEMPTIONS:
Payments to registered persons against acquisition of following goods are exempt from sales tax withholding :
Electrical energy
Natural gas
Petroleum products supplied by petroleum production and exploration companies, oil refineries, oil marketing companies and dealer of motor spirit and high speed
diesel
Registered persons paying sales tax under Chapter XI of the Sales Tax Special Procedure Rules, 2007, except those paying sales tax on ad valorem basis at
standard rate.
Vegetable ghee and cooking oil
Telecommunication services
Goods falling under the Third Schedule to the Sales Tax Act, 1990
Goods supplied by commercial importers on which Value Addition Tax has been paid at import stage
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
20
Sindh Sales Tax Special Procedure (Withholding)
Rules, 2015
Withholding Agent if he is resident in Sindh or has a place of business in
Sindh
- Offices and departments of Federal Government, Provincial Governments, and
Local or District Governments;
Service provider [whose SST to be withheld]
Rate of SST Withholding
Registered Person
1/5th of Sales Tax Amount
Unregistered Person
Applicable rate of sales tax
Registered Person
1/5th of Sales Tax Amount
Unregistered Person
Applicable rate of sales tax
Registered Person
Applicable rate of sales tax except
for services of advertising agent
Unregistered Person
Applicable rate of sales tax
N/A
Applicable rate of sales tax
- Autonomous bodies;
- Public sector organizations, including public corporations, state-owned
enterprises and regulatory bodies and authorities;
- Organizations which are funded, fully or partially, out of the budget grants of
the federal or provincial governments;
Companies, as defined in clause (28) of section 2 of the Sindh ST Act
FBR-registered or SRB-registered persons receiving taxable services of
advertisements, renting of immovable property, services of auctioneers,
services of inter-city transportation of goods, services of advertising agent.
SRB registered person receiving taxable services from unregistered persons
EXEMPTIONS:
Payment to following, if registered under Sindh Sales Tax on Services Act, 2011, are exempt from Sindh sales tax withholding :
Telecommunication service providers
Banking companies
Financial institutions
Insurance company other than reinsurance company
Port operators
Airport operators
Terminal operators
Airport ground service providers
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
21
Punjab Sales Sales on Services (Withholding)
Rules, 2015
Withholding Agent [Purchaser]
Federal Govt;
Provincial Govt;
Autonomous body
Public sector organization etc.
Company which is a resident or has a place of
business in the Punjab
Recipient of advertisement services registered for
Federal sales on goods or Punjab sales tax on
services
Registered persons receiving taxable services
from other than registered persons
Accounting office responsible for payment against
invoices of taxable services received by
Government department
Service provider [whose sales tax to be
withheld]
Rate of PST Withholding
Registered Person
Applicable rate of sales tax
Unregistered Person
Applicable rate of sales tax
Registered Person
Applicable rate of sales tax
Unregistered Person
Applicable rate of sales tax
Registered Person
Applicable rate of sales tax
Unregistered Person
Applicable rate of sales tax
N/A
Applicable rate of sales tax
Registered Person
Applicable rate of sales tax
Unregistered Person
Applicable rate of sales tax
EXEMPTIONS:
Payments against following services are exempt from Punjab sales tax withholding :
Telecommunication
Banking
Courier
Insurance
Services (except advertisement services) provided by the companies being the active taxpayer.
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
22
KPKRA Sales Tax Special Procedure
(Withholding) Rules, 2015
Withholding Agent
-
Offices and departments of Federal Government, Provincial
Governments, and Local or District Governments;
-
Autonomous bodies;
-
Public sector organizations, including public corporations, stateowned enterprises and regulatory bodies and authorities;
-
Organizations, projects which are funded, fully or partially, out of
the budget grants of the federal or provincial governments;
Companies, as defined in clause (12) of section 2 of KPK Act, which
are resident of the Province or have a place of business there.
Recipient of Advertisement Services who are registered for FBR's
sales tax on goods or for KPK sales tax on services Act.
Registered person in KPK receiving taxable services from
unregistered persons
Service provider [whose sales tax to be
withheld]
Rate of withholding sales
tax
Registered Person
1/5th of Sales Tax Amount
Unregistered Person
Applicable rate of sales tax
Registered Person
1/5th of Sales Tax Amount
Unregistered Person
Applicable rate of sales tax
Registered Person
Applicable rate of sales tax
Unregistered Person
Applicable rate of sales tax
N/A
Applicable rate of sales tax
Exclusion from Withholding provisions
NONE
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
23
Offences, Default
Surcharge and
Penalties
24
Default surcharge under Section 34

Default Surcharge: Default Surcharge is attracted in case of non payment of
tax due within due date whether intentionally or otherwise, as per the
following rates:
Non payment on account of any
reason, other than tax fraud
KIBOR plus 3% per annum of the
amount of tax due
Non payment on account of tax fraud 2% per month (24% per annum)
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
25
Penalty under Section 33

If a person commits offenses prescribed under various provisions of law, then
penalties as provided in the Table of Section 33 would be enforced.

Penalties are waived on voluntary compliance by registered persons as provided
under Section 25 of STA. However, default surcharge is payable on every late
payment of tax due.

Superior courts have held in plethora of decisions that penal provisions of any
tax statute become applicable whenever the element of mens-rea exists in
relation to evasion of tax.
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
26
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. No member
firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG
International have any such authority to obligate or bind any member firm. All rights reserved.
27