ISLAMABAD : The documentation of business and trade under the reformed general sales tax ( RGST ) would be undertaken by obtaining particulars of unregistered buyers and sellers from registered manufacturers and distributors, etc, to bring the entire chain of supply into the tax net.
Sources told Business Recorder here on Sunday that the Federal Board of Revenue (FBR) may impose some penalty on unregistered buyers, who do not disclose their National Tax Number (NTN)/computerised national identity card number (CNIC) during business transactions. In case the Board introduces such penalty, it has estimated a collection of nearly Rs 60-65 billion from un-adjustable extra tax liability of 3 percent on taxable supplies made by manufacturers, importers and wholesalers to unregistered buyers without disclosing their NTN/CNIC. The FBR is expected to propose penalty for those retailers who do not declare their NTN/CNIC at the time of purchase of saleable commodities, which would generate around Rs 60-65 billion under RGST. The cost of unregistered buyers would increase following imposition of the penalty and they would be compelled to operate under the documented regime. Sources said that another proposal under discussion is to make it mandatory for the manufacturers, distributors and wholesalers to provide particulars of all registered and unregistered buyers and sellers under the sales and purchase invoice summaries. The tax department can approach the manufacturers, wholesalers and dealers to obtain the particulars of registered as well as unregistered buyers. Once the FBR obtains information about the unregistered buyers, the turnover of the retailers would automatically be known to the tax department without directly approaching the retail outlets. At present, the manufacturers, distributors and wholesalers are not bound to disclose particulars of unregistered buyers and sellers in the sales tax invoice summaries. The provision to obtain such details is available in the return, but enabling clause is needed to be introduced to implement the decision. As per existing law, details of only registered persons could be obtained through return/invoice summary. Under the proposal, the manufacturers, wholesalers and distributors should provide details of all sales and purchases whether the sellers and buyers are registered or not. Irrespective of the fact whether the buyers and sellers are registered or not, the particulars should be obtained to expand the tax net. In this way, the information of the buyers and retailers would be available to the tax department without going to the retailers. The FBR may ask the exporters to submit a declaration under the revised sales tax regime to ensure the consumption of inputs/raw materials in manufacturing of the finished products. The declaration of exporter would be obtained while issuing refund cheque to the claimant. The post-refund audit would verify the consumption of these inputs in the finished products being exported under the new system. Sources said that the business of fake/flying invoices would be checked under the Expeditious Refund System due to electronic processing of documents. In the past, there were cases where fraudulent refunds were issued on fake invoices with the connivance of the department due to manual system. However, the particulars of buyers would be matched with the help of data available with the manufacturers. The new system would be subject to post-refund audit and active taxpayers doing business with compliant suppliers would face no problems in obtaining GST refund under the new system. Sources said that the documentation could also be done by abolition of the Third Schedule of the Sales Tax Act, 1990 to bring wholesalers, dealers and retailers of commodities into the tax net which are operating under the said schedule. Presently, wholesalers, dealers and retailers of certain commodities are operating out of the documented regime. On the other hand, the manufacturers are paying sales tax of all stages of value-addition of consumer items having printed retail price under Third Schedule. The tax is being collected by the manufacturers, but the wholesalers, dealers and retailers of certain commodities were not brought under the documented regime. The present procedure is in place to ensure sales tax collection from items where wholesalers, dealers and retailers are not registered with the sales tax department. Presently, items chargeable to sales tax at the retail stage include fruit juices and vegetable juices, ice cream, aerated waters or beverages, syrups and squashes, cigarettes, toilet soap, detergents, shampoo, toothpaste, shaving cream, perfumery and cosmetics, tea, powder drink, milky drink, toilet paper and tissue paper, spices sold in retail packing bearing brand names and trade marks and shoe polish and shoe cream. Under the regime of Third Schedule, sources said, the manufacturers pay the sales tax of all stages of value-addition of consumer items having printed retail price. Under the ideal sales tax regime, the tax is to be paid on value-addition attributed to each stage, starting from manufacturing down to retail sale to the end consumer. However, despite efforts to bring the intermediate linkages in supply chain into the taxation system, a number of dealers, distributors and wholesalers are still out of tax net and resultantly the tax actually chargeable at each stage on value-addition is not being recovered. Sources said that the abolition of the Third Schedule of the Sales Tax Act would bring the retailers, wholesalers and dealers of these commodities under the tax net which are presently not operating under the documented regime.
Courtesy : Business Recorder