KARACHI: President Karachi Chamber of Commerce & Industry (KCCI) Junaid Esmail Makda, while highlighting various Sales Tax and Income Tax anomalies unveiled in the Federal Budget 2019-2020, appealed Prime Minister Imran Khan, State Minister for Revenue Hammad Azhar and Chairman FBR Shabbar Zaidi to rectify all these anomalies on top priority prior to seeking approval of the Budget from the parliament.
In a statement issued on Friday, President KCCI stressed the government must deal with all these anomalies otherwise the industry will not be able to keep its wheels spinning, that will lead to raising unemployment and poverty all over the country, besides creating a disastrous situation and a tsunami for the already ailing economy.
The Karachi Chamber has identified following anomalies in the Federal Budget:
SALES TAX ISSUES
1. Definition of Cottage industry is changed – Section – 2 (5AB)
Currently Cottage industry means manufacturer with annual turnover of less than Rs. 10 million or whose annual utility bills do not exceed Rs. 0.8 million.
Now Cottage Industry would be a manufacturing concern:
(a) Which does not have an industrial gas or electricity connection,
(b) is located in a residential area;
(c) Does not have a total Labour force of more than ten workers; and
(d) Annual turnover from all supplies does not exceed Rs. 2 million.
2. Section – 3 (7) “Scope of tax” – Sales Tax withholding
Currently Sales Tax withholding is applicable through SRO-660/2007 and as per its Rule – 5 various exclusions are provided for Sales Tax withholding including for goods of 3rd Schedule and for Companies being Active taxpayers.
Now separate 11th Schedule is proposed to be included in Sales Tax Act, 1990 and such exclusions are to be included in such Schedule or Rules to be prescribed.
Further, currently Companies are required to withhold 1 percent of value of purchase from un-registered suppliers and that become the part of cost for buyer / companies. Now this rate is proposed to be enhanced to 5 percent and that we increase cost of such companies purchasing from un-registered suppliers.
3. Section – 7A “Levy and collection of tax on specified goods on value addition”
Currently 3 percent Value Added Tax (VAT) is applicable through Rule – 58A to E under SRO – 480/2007 and manufacturer importing goods for in house consumption is not charged with such 3 percent VAT at import stage.
Now separate 12th Schedule is proposed to be included in ST Act, 1990 and only those manufacturer that would import Raw materials and intermediary goods for industrial process which are subject to customs duty at 16 percent or 20 percent ad valorem are excluded. This means that manufacturer importing goods which are subject to Custom duty other than 16 percent or 20 percent would be required to pay 3 percent VAT.
4. Sale to un-registered person
– Section – 8(m) “Tax Credit not allowed”
Now Sales paid on input goods attributable to supplies made to un-registered person, on pro-rata basis, for which Sale Invoices do not bear the NIC number of the buyer.
– Section – 23 (b) “Tax Invoices”
NIC of unregistered buyer shall also be mentioned on ST Invoice otherwise input tax paid for such supply would not be allowed.
3rd schedule products shall be excluded from the requirement of mentioning NIC of un-registered buyer otherwise major input of manufacturer would be disallowed.
5. Section – 25 (2) “Access to record / Audit”
In last Finance Act, 2018 a Proviso was to Section – 25 (2) to limit the audit once in 3 years and that proviso is now proposed to be excluded that would mean that now audit of Sales Tax records can be conducted each year by the concerned commissioner.
6. Section – 33A – “Proceeding against person”
FBR shall prescribe rules for initiating criminal proceedings against any officer of FBR who willfully and deliberately commits or omits an act which results in personal benefits and undue advantage to officer or the person or taxpayer or both. Further, the FBR shall simultaneously intimate the relevant government agency to initiate criminal proceedings against the taxpayer.
This provision is also included in as Section – 19A to Federal Excise Act, 2005, as Section – 216A to Income Tax Ordinance, 2001 and as Section – 156A to Customs Act, 1969.
A. Income Tax
1. Section – 21 “Deduction not allowed”
Section – 21 deals with heads of expenses that are not allowed to be deducted from taxable income. It is proposed to add new clause (ca) to disallow the commission paid on 3rd Schedule products over 0.2 percent of gross value of supplies if the recipient of such commission is not registered in Sales Tax and not appear on Active Taxpayers List for Income tax purpose.
“(ca) any amount of Commission paid or payable in respect of supply of products listed in the Third Schedule of the Sales Tax Act, 1990, where the amount of commission paid exceeds 0.2 percent of gross amount of supplies thereof unless the person to whom commission is paid or payable, as the case may be, is registered under the Sales Tax Act, 1990 and is appearing in the active taxpayer list under this Ordinance.
2. Section – 65B “Tax Credit for investment”
Currently Tax credit @ 10 percent is allowed on amount of investment in Plant & Machinery made by industrial undertaking till the tax year 2021. It is proposed that for Tax year 2019, it shall be 5 percent and this credit will not available after Tax year 2019.
3. Section 108AB new section added “Transactions under dealership arrangements”
A person supplying 3rd Schedule goods or goods prescribed by FBR, under a dealership arrangement to dealers who is not registered in Sales Tax and are not appearing in the Active Taxpayers List for Income tax, an amount equal to 75 percent of the dealer’s margin (which is 10 percent of manufacturer’s sale price) shall be added to the income of supplier / manufacturer. Hence, amount equal to 7.5 percent of manufacturer sale price would be disallowed as expense for manufacturer.
4. Section – 120B “Restriction of proceedings”
It is proposed that no proceedings shall be undertaken under the Ordinance against the person who declares undisclosed assets, undisclosed expenditures and undisclosed sales under the Assets Declaration Act, 2019.
Further, the particulars of the person making declaration or any information received in respect of such / any declaration made under the said Act shall be kept confidential except for the requirement of disclosures of information mentioned in clauses (a) and (g) of sub-section (3) of section 216 of the Ordinance.
Section – 216 (a and g) deals where information /documents / return etc can be disclosed to person acting under the Income Tax Ordinance (where it is necessary to disclose to him for Ordinance) and officer under the Sales Tax & Federal Excise Act (for enabling him to exercise his powers).
5. Section – 175 “Power to enter and search premises”
It is proposed to give power to Commissioner to raid any premises where there is reliable information of undeclared gold, bearer security or foreign currency and confiscate the same in order to enforce any provision of this Ordinance.
6. Section – 216 “Disclosure of Information by a public servant”
It is proposed to give power to FBR to publish names (in the print and electronic media) of offshore evaders who have evaded offshore tax equal to or exceeding Rs. 2.5 million and names of offshore tax enablers who have enabled offshore tax evasion.
President KCCI has requested Prime Minister, all Ministers and Advisors that before presenting the budget at the parliament for approval, they must hold a consultative session with Karachi Chamber for the rectification of the abovementioned budget anomalies.