The Karachi Tax Bar Association (KTBA) has raised concerns and called for the removal of the condition requiring the reporting of HS codes in sales tax returns.
In a letter addressed to Malik Amjad Zubair Tiwana, the Chairman of the Federal Board of Revenue (FBR), Syed Zafar Ahmad, President of KTBA, emphasized the pressing issue related to recent changes in sales tax reporting and the associated restrictions.
According to the letter, the Sales Tax General Order No. 13 of 2022, issued on April 7, 2022, introduced a significant limitation on the IRIS portal. It stipulated that sales of goods under specific HS codes by importers, wholesalers, dealers, and distributors could only be reported in Annex-C of their sales tax return if those goods under the same HS code were also declared in Annex-A and Annex-B by the purchasers.
While the intention behind this measure is understood to be aimed at curbing malpractices, it is crucial to highlight that this decision has far-reaching consequences for honest taxpayers. The KTBA elaborated on the challenges faced by taxpayers due to this abrupt restriction:
Purchases From Unregistered Persons: In cases where purchases are made from unregistered individuals, there is no provision for reflecting these transactions in Annexure-A of the monthly sales tax returns. This hinders registered entities from bringing such transactions under the tax net, resulting in a loss of government revenue and sales tax withholding.
Purchases Made in Prior Periods: Businesses often maintain stocks for an extended period before selling them. However, the current system focuses primarily on the input tax for the current month, making it difficult to account for legitimate purchases made by registered entities, especially those dealing with bulk purchases and sales.
The letter also emphasized a fundamental issue concerning the legal basis for the issuance of the Sales Tax General Order. It noted that Section 55 of the Sales Tax Act, 1990, allows the FBR to issue instructions, directions, or actions to address difficulties in implementing the provisions of the Act, provided they are consistent with the Act. The KTBA argued that the restrictions placed on sales tax returns, as per the General Order, exceed the FBR’s legal authority, as there are no specific provisions in the Act regarding HS codes and their correlation with purchases.
The KTBA called for an immediate review and potential revision of these restrictions, considering the challenges faced by honest taxpayers and the need for a balanced approach to combat tax evasion while ensuring a fair and efficient tax collection system. The letter concluded with a request for the FBR to reinstate the option to report purchases from unregistered persons and to address the issues related to purchases made in prior periods.
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