The Federal Board of Revenue (FBR) has clarified the rates and application of default surcharge for taxpayers who fail to meet their tax payment obligations. This surcharge is governed under Section 34 of the Sales Tax Act, 1990, and applies to both intentional and unintentional delays or errors in tax payments.
What is Default Surcharge?
Default surcharge is an additional charge imposed on taxpayers who fail to pay their due taxes on time, make inadmissible claims for refunds, or incorrectly apply tax rates such as the zero percent rate on supplies.
Applicable Rates
Under Section 34, the following rates for default surcharge are applied:
1. General Default: Taxpayers failing to pay their due taxes or receiving erroneous refunds are liable to pay default surcharge at either 12 percent per annum or KIBOR (Karachi Interbank Offered Rate) plus 3 percent per annum, whichever is higher.
2. Tax Fraud Cases: For cases involving tax fraud, the rate increases significantly. Taxpayers must pay default surcharge at 2 percent per month of the amount of tax evaded or the refund fraudulently claimed until the full liability, including the surcharge, is cleared.
Calculation of Default Surcharge
The FBR has outlined specific methods for calculating default surcharge:
• For Inadmissible Input Tax Credit or Refund: The default period is calculated from the date the credit adjustment was made or the refund was received.
• For Non-payment of Tax: The period begins on the 16th day of the month following the due date of the tax period and continues until the tax is paid in full.
Important Notes
The FBR emphasized that the default surcharge applies in addition to the tax liability and does not include penalties, which are calculated separately.
Why It Matters
Taxpayers are urged to comply with the rules to avoid the burden of default surcharge. The rates, particularly in fraud cases, can accumulate quickly, making it costly to delay or evade tax payments.
Understanding the implications of default surcharge is essential for all taxpayers to ensure timely compliance and avoid additional financial liabilities. The FBR continues to encourage adherence to tax regulations to maintain fiscal discipline and transparency.