KARACHI: Karachi Tax Bar Association (KTBA) has recommended amendments in withholding sales tax regime on purchases from unregistered taxpayers.

The KTBA in its proposals for budget 2022/2023, informed the Federal Board of Revenue (FBR) that the the move was intended to increase the cost of doing business for unregistered taxpayers, which otherwise is counterproductive and has impacted the documented sector more adversely resulting in high cost of doing business for compliant taxpayers. On the other hand, no significant increase in registration has been witnessed as result of enhanced withholding rate.

READ MORE: Zero rate sales tax suggested for public welfare services

It is proposed that either the withholding rate be reduced to 1% else tax withheld be allowed as admissible input tax to the registered taxpayers upon providing CNIC/ NTN of such unregistered suppliers so that FBR can trace those unregistered taxpayers and bring them into tax net.

It is likely to reduce the cost of doing business for the compliant registered taxpayers who are compelled to purchase their raw materials from the unregistered taxpayers owing to market practices.

READ MORE: Advance tax on individuals must be for Rs10mn turnover

Another proposals, the tax bar said further tax at 3 per cent has been levied on taxable supplies made to a taxpayer who has not obtained sales tax registration number.

The expressions “person who has not obtained registration number” is quite vague and inadvertently covers all taxpayers whether required to be registered or not. This creates undue tax burden on taxpayers like service providers who otherwise are not required to be registered under the Act.

The expression “a person who has not obtained sales tax registration number,” as used in Section 3(1A) is required to be replaced with the following expression: “The person who are required to be registered but are not registered under the Act.” Alternatively a suitable explanation may also be inserted to amend SRO 648(I)/2013.

READ MORE: Eliminating commissioner audit selection power sought

Taxpayers not subject to tax under the Act dealing in non-taxable or exempt goods will be excluded from the purview of further tax and litigations pending before appellate forum will be settled.

The tax bra further highlighted that the FBR on the strength of Notification No.SRO 1222(1)/2021 has levied extra tax on supplies of electric power and natural gas to taxpayers having industrial or commercial connections, who either have not obtained sales tax registration number or are not on the Active Taxpayers List maintained by the Federal Board of Revenue under sales tax regime.

READ MORE: Threshold be doubled for domestic electric consumers

The expression “persons having industrial or commercial connections, but have either not obtained sales tax registration number or are not on the Active Taxpayers List maintained by the Federal Board of Revenue” is quite vague and inadvertently burdened all taxpayers like service providers, suppliers of exempt goods with extra tax.

It is proposed that expression “either in Income Tax or Sales Tax regime” be inserted in SRO 1222(1)/2021 after the words “Federal Board of Revenue”.

The issue is contentious and proposal is likely to rest all controversies.

KARACHI: The Federal Board of Revenue (FBR) has been urged to zero rate the sales tax on supplies of goods made to charitable or non-profit organizations providing public welfare services.

Karachi Tax Bar Association (KTBA) in proposals for budget 2022/2023, suggested amendments to sales tax laws regarding charitable or Non-Profit Organizations (NPOs), including hospitals and educational institutions.

READ MORE: Advance tax on individuals must be for Rs10mn turnover

The tax bar said that contrary Income Tax Law, there is no clear concept to determine a Charitable or Non-Profit Organizations in Sales Tax Act, 1990 and consequent to amendments brought in Fifth and Sixth Schedules, via Finance Supplementary Act, 2022 the situation has become more grave for these taxpayers.

“Public welfare services provided by such charitable, hospitals and educational institutions has become expensive as a good chunk of their revenue (donations/ grants) ends up in payment of sales taxes. This being contrary either to agreements signed by the Government with other States and international donors,” the tax bar said.

READ MORE: Eliminating commissioner audit selection power sought

It is suggested that supplies of goods to these institutions be charged to tax at the rate of zero percent and following new entry be inserted to Fifth Schedule: “Supplies to a Non-Profit Organization as determined U/s. 2(36) of Income Tax Ordinance, 2001″.

Earlier, the KTBA proposed the discretionary power of commission Inland Revenue to select audit cases should be eliminated.

“The power to select should only be exercised by the Federal Board of Revenue (FBR) under Section 214C of Income Tax Ordinance, 2001,” the tax bar proposed in its proposals.

READ MORE: Threshold be doubled for domestic electric consumers

The tax bar said Sub-Section (2) of Section 138 provides that If the amount referred to in the notice issued under sub-section (1) is not paid within the time specified therein or within the further time, if any, allowed by the Commissioner, the Commissioner may proceed to recover the tax in the prescribed manner.

“The tax authorities construe that term ‘payment’ mentioned in the section 140 does not cover amount recovered from the tax payer,” it added.

READ MORE: Genuine NPOs unable to get benefit of 100% tax credit

The KTBA said that rigorous proceedings causing hardship to taxpayers and leading protracted departmental and appellate proceedings.

“The power to select the return of income may rest only with the FBR already having the powers to select the case randomly through Computer U/s. 214C of the Ordinance,” it recommended.