The Karachi Tax Bar Association (KTBA) has recently highlighted the issue of undescribed timelines under the Sales Tax Law in Pakistan.
In their proposals for the upcoming budget, the tax bar has recommended changes to address the problems faced by taxpayers regarding timelines for tax audits, deregistration processes, show-cause cases, and various compliance requirements. The KTBA argues that providing clear and reasonable timelines will reduce uncertainty, streamline processes, and ensure a more efficient tax system.
The absence of a specific timeline for completing a tax audit under section 25 of the Sales Tax Act creates prolonged audit proceedings for taxpayers. This lack of clarity puts undue stress on taxpayers, especially when the jurisdiction of the auditing officer changes, leading to repeated demands for voluminous details. To alleviate this burden, the KTBA proposes that tax audits initiated under section 25 should be concluded within a maximum period of 6 months, ensuring a timely and efficient audit process.
The process of deregistering a taxpayer for sales tax purposes currently lacks a defined timeline. It often takes between 6 to 10 months, and sometimes even longer, to finalize the deregistration process. This uncertainty causes anxiety for taxpayers awaiting the outcome of their cases. To address this issue, the KTBA recommends that the process of deregistration should be completed within three months. Additionally, if the application for deregistration is not disposed of within the prescribed time period, the applicant should be considered automatically deregistered.
Although specific timelines are provided in the law for concluding show-cause notices issued under section 11 of the Sales Tax Act, these timelines are often extended by the Commissioner Inland Revenue without providing any reasons for the extension. This practice allows field officers to take a laid-back approach, while taxpayers remain unaware of the extended timeline until an order is passed. To rectify this, the KTBA suggests that taxpayers should be served with a copy of the notice requesting an extension, and the Commissioner should ensure that a copy of the extension approval or rejection is provided to the taxpayer. This will enhance transparency and enable taxpayers to respond appropriately to any extensions granted.
The KTBA proposes extending timelines in several compliance-related areas, such as revision of sales tax returns, limitation for issuing debit and credit notes, submission of refund claims, compliance of payment proof, and condonation. The KTBA recommends extending these timelines to 365 days to simplify the law and facilitate compliance without causing any revenue loss.
The concerns raised by the Karachi Tax Bar Association regarding undescribed timelines under the Sales Tax Law highlight the need for clarity and efficiency in the tax system. Providing specific timelines for tax audits, deregistration processes, show-cause cases, and compliance requirements will alleviate stress for taxpayers, ensure transparency, and streamline operations. Implementing these proposals will contribute to a more effective and taxpayer-friendly tax regime in Pakistan.