Karachi, December 3, 2023 – In a move to address tax recovery challenges from companies undergoing liquidation, the Federal Board of Revenue (FBR) has issued a comprehensive procedure under the Sales Tax Act, 1990 for the tax year 2024.
The updated Section 58 of the Sales Tax Act delineates the mechanism for recovering taxes from companies in the process of winding up.
Liability for Tax Payment in Liquidation:
Section 58 of the Sales Tax Act, 1990 outlines the liability for the payment of taxes in the case of private companies or business enterprises undergoing liquidation. Despite provisions in the Companies Act, 2017, the FBR’s directive states that if any private company or business enterprise is wound up, and the tax for any tax period remains unrecoverable from the company, every person associated with the entity during the relevant period becomes jointly and severally liable for the payment of such tax.
The persons held liable include owners, partners, directors, or shareholders owning at least ten percent of the paid-up capital in the company or business enterprise. This provision underscores the FBR’s commitment to ensuring that tax liabilities are not evaded, even in cases of corporate liquidation.
Entitlement to Recover Tax Payments:
The updated section also provides avenues for directors, partners, and shareholders who bear the tax burden under this provision. Directors or partners making tax payments under Sub-section (1) are entitled to recover the tax paid from the company or a share of the tax from any other director or partner, respectively.
Similarly, shareholders who fulfill their tax obligations under Sub-section (1) are empowered to recover the tax paid from the company or from any other shareholder owning not less than ten percent of the paid-up capital. This provision adds a layer of fairness, allowing those who fulfill their obligations to reclaim the financial burden imposed on them.
Application of Tax Recovery Provisions:
The FBR emphasizes that the provisions outlined in the Sales Tax Act, 1990 shall apply to any amount due under this section as if it were tax due under an order for assessment made under the Act. This reinforces the legal standing of the tax recovery procedure and ensures its consistent application across all relevant scenarios.
This move by the FBR represents a proactive effort to strengthen tax enforcement mechanisms and ensure that tax liabilities are met, even in cases of corporate dissolution. It serves as a deterrent against potential misuse of liquidation processes to evade tax obligations. The clarity provided by the updated Section 58 is expected to facilitate smoother tax recovery procedures and contribute to the overall integrity of the taxation system in Pakistan.
As the FBR continues its efforts to enhance tax compliance and streamline processes, this latest directive reflects the government’s commitment to creating a fair and transparent business environment, reinforcing investor confidence and contributing to sustainable economic growth.