Proposal for withholding on purchases from unregistered

Proposal for withholding on purchases from unregistered

KARACHI: Karachi Tax Bar Association (KTBA) has recommended amendments in withholding sales tax regime on purchases from unregistered taxpayers.

The KTBA in its proposals for budget 2022/2023, informed the Federal Board of Revenue (FBR) that the the move was intended to increase the cost of doing business for unregistered taxpayers, which otherwise is counterproductive and has impacted the documented sector more adversely resulting in high cost of doing business for compliant taxpayers. On the other hand, no significant increase in registration has been witnessed as result of enhanced withholding rate.

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It is proposed that either the withholding rate be reduced to 1% else tax withheld be allowed as admissible input tax to the registered taxpayers upon providing CNIC/ NTN of such unregistered suppliers so that FBR can trace those unregistered taxpayers and bring them into tax net.

It is likely to reduce the cost of doing business for the compliant registered taxpayers who are compelled to purchase their raw materials from the unregistered taxpayers owing to market practices.

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Another proposals, the tax bar said further tax at 3 per cent has been levied on taxable supplies made to a taxpayer who has not obtained sales tax registration number.

The expressions “person who has not obtained registration number” is quite vague and inadvertently covers all taxpayers whether required to be registered or not. This creates undue tax burden on taxpayers like service providers who otherwise are not required to be registered under the Act.

The expression “a person who has not obtained sales tax registration number,” as used in Section 3(1A) is required to be replaced with the following expression: “The person who are required to be registered but are not registered under the Act.” Alternatively a suitable explanation may also be inserted to amend SRO 648(I)/2013.

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Taxpayers not subject to tax under the Act dealing in non-taxable or exempt goods will be excluded from the purview of further tax and litigations pending before appellate forum will be settled.

The tax bra further highlighted that the FBR on the strength of Notification No.SRO 1222(1)/2021 has levied extra tax on supplies of electric power and natural gas to taxpayers having industrial or commercial connections, who either have not obtained sales tax registration number or are not on the Active Taxpayers List maintained by the Federal Board of Revenue under sales tax regime.

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The expression “persons having industrial or commercial connections, but have either not obtained sales tax registration number or are not on the Active Taxpayers List maintained by the Federal Board of Revenue” is quite vague and inadvertently burdened all taxpayers like service providers, suppliers of exempt goods with extra tax.

It is proposed that expression “either in Income Tax or Sales Tax regime” be inserted in SRO 1222(1)/2021 after the words “Federal Board of Revenue”.

The issue is contentious and proposal is likely to rest all controversies.