All Pakistan Textile Mills Association (APTMA) has proposed overall revision of sales tax regime under new Textile Policy (2014-19), including zero percent sales tax on all items mentioned in SRO.1125(I)/2011, ‘no sales tax-no refund regime’, extension of zero-rating facility on diesel/other fuels for export-oriented units, audit selection only through computer balloting and prior approval of the Federal Board of Revenue (FBR) before initiating proceedings against active textile units.
According to TEXtalks International sources APTMA has communicated suggestions to the Ministry of Textile under five-year plan for the new Textile Policy (2014-19). APTMA has given input on the said policy suggesting total revamping of the sales tax regime and key amendments in various provisions of the Sales Tax Act, 1990.
APTMA sought special treatment for units having large manufacturing set-up, public or private limited firms. In the recent past unusual exercise of powers to arrest has been witnessed, irrespective of the nature of allegations, past history of the taxpayers and industrial infrastructure set up by them. A person having investment in the shape of industry cannot fly over night to avoid trial. To curtail discretionary powers of tax officials, promotion of industrialisation and businessmen-friendly environment, Persons having large manufacturing setup, public or private limited firms should not be arrested without prior trial.
The APTMA has also suggested amendments in the Sales Tax Act to reduce discretionary powers and prior approval of the Board is provided for initiating proceedings against registered persons, who are on Active Tax Payers List of the Board. Under section 40-B and 40-C, a Sales Tax Officer can be posted to the premises of a registered person or monitor his business activities through electronic tracking system. This is against the government policy to minimise direct contact between a tax collector and taxpayer as it may result in corruption and tax evasion. Further, it totally negates the concept of self assessment, which forms the basis of whole sales tax scheme. To minimise chances of corruption and direct contact between tax collector and payer the provision be removed from the statute or it can only be exercised after completion of due process of law including issuance of show cause notice.
APTMA suggested that after amendment of SRO 1125(I)/2011 through 154(I)/2013, the facility of zero-sales tax rate on local supplies of export oriented sectors has been replaced with charge of reduced rate of 2% on such supplies. There is apprehension that either the aforesaid reduced rate would be enhanced or normal sales tax rate would be made applicable. The reduced rate of 2% was fixed after due deliberation and diligence and ought to be continued. There are some other irritants as well such as supplies within the five sectors when the rate of tax is 2 percent irrespective that whether the buyer is a registered person or otherwise. The manufacturer has no means to ascertain that the buyer is from the specified sector or not. Since the textile products have almost no use outside the sector therefore the condition needs to be suitably amended so that there are no disputes on the issue with the department.
To facilitate exporters to avail maximum benefit from GSP plus status and to eliminate corruption, non accrual of bogus refunds and promotion of exports, it is proposed that all items listed in Table-1 of SRO 1125(i)/2011 be chargeable to Sales Tax @ 0 percent within registered supply chain of five export sectors. Sales Tax @ 2 percent be charged on supplies made to unregistered person of the same sector and introduction of no sales tax – no refund regime.
It suggested that due to heavy load-shedding of electricity and non-availability of same for most of the time, the manufacturers are forced to adopt substitute resources, ie, self-generation through diesel/petrol generators. For this handsome amounts are being spent on purchase of fuel and the manufacturers are forced to pay sales tax as well on such procurement which defeats the whole idea of making the manufacturer-cum-exporter comfortable with little incidence of input tax.
It is therefore suggested that in line with availability of zero-rating on electricity/gas connections for export-oriented manufacturing units, they may also be allowed to procure diesel/other fuels at 0% of sales tax. In order to achieve transparency in tax audits, powers for selection of audit should rest with FBR only through parametric or computerised selection as the Taxpayers suffer from uncertainty, mental torture and undue harassment due to discretionary powers of selection of cases for audit. To induce transparency in audit selection and discourages use of discretionary powers explanation inserted through amendment in section 25 vide Finance Act, 2013 for calling information, record etc, for other than audit, be deleted. Taxpayers should be selected for audit through computer balloting only. The list of selected cases will be placed on website along with reasons for selection. In case of any irrationality, taxpayer may take up issue of such selection to panel/committee, it said.
It suggested that the existing sales tax return contains some complicated and unnecessary annexures, which are time consuming and require plenty of professional staff. Annex ‘F’ and Annex ‘H’ pertaining to stock details are difficult to fill-in properly each month. As reporting of stock detail in each and every month is neither practicable nor necessary. Such compliance only causes hassle to trade and genuine taxpayers. The condition for filing unnecessary annexure should be curtailed at maximum level to achieve simplification and such details if essentially required can be made part of annual sales tax return.
As amended by SRO 682, the rate of Sales tax for the items included in the Schedule 1 & Schedule 2 of the Notification are subject to three different rates. Finished products of textile and leather are subject to Sales Tax @ 5%, raw material of all five export-oriented industrial sectors are subject to Sales Tax @2% if sold within these five sectors and 17 percent if sold outside of these five sectors. All items included in Schedule 1 & 2 of the notification are only those items which have minimum use (70 percent or more) in these five sectors. Sale of these items is allowed @2 percent sales tax to registered as well as unregistered persons dealing in these five sectors. It is very difficult to ascertain that whether the registered/unregistered buyers are dealing in these five sectors as these items are more than 70% consumed in these five sectors therefore, rate of 17% is restricted to the extent of registered buyer not dealing in these five sectors, it suggested.
The amendment made in Sales Tax Special Procedure Withholding Rules through SRO 98(I)/2013, whereby withholding liability has been placed on all the corporate taxpayers and exporters in respect of supplies from the unregistered persons as well. Whereas nominal purchases of parts etc from the unregistered person is a business exigency and has to be made in compelling circumstances. Withholding of sales tax from such suppliers increases the cost of doing business as the purchases become costly as per decade old market practice.
It is therefore proposed that Special Procedure be amended to provide for that the textile sector is in the list of exclusion wherein withholding rules would not be applicable. Alternate proposal is that either sales tax withholding @ 1 percent be withdrawn or it may be given treatment of input tax in line with the analogy of VAT to set-off burden of additional sales tax.
Taxpayers should be selected for audit through computer balloting only. The list of selected cases be placed on website along with reasons for selection. In case of any irrationality, taxpayer may take up issue of such selection before panel/committee.
It suggested that vast discretionary powers under section 37 of the Sales Tax Act 1990 are a constant irritant for the textile sector through which every compliant and leading industrial undertakings are implicated across the country while conducting inquiries against local suspected units. Repeated notices/summons and that too on frivolous basis is misuse of authority against compliant taxpayers. The section 37 and 38 are suitably amended to reduce discretionary powers and prior approval of the Board is provided for initiating proceedings against registered persons who are on Active Tax Payers List of the Board.
The section 8B of the Sales Tax Act 1990 restricts adjustment of input tax in excess of 90% of output tax during a tax period. There are some exclusion considering special circumstances in terms of SRO 647(i)/2007. However in-spite frequent amendments in sales tax law, provisions for exclusions are not revisited.
For Simplification of law exclusions from section 8-B given under notification 647(I)/2007 be revisited. Commercial importers and exporters/persons operating under reduced rate regime to be added in exclusion provided therein. The FBR has recently issued SRO 450(I)/2013 through which tax credit on construction material is made inadmissible. Disallowance of input tax on the pretext that these are not directly used in manufacture of taxable supply is an invalid argument. No business activity can be initiated without capital investment. To provide incentive for promotion and establishment of new business set-up, input tax credit should be made admissible on all items directly or indirectly required for business activities, APTMA added.