The Sales Tax Act, 1990, as updated by the Federal Board of Revenue (FBR) up to June 30, 2020, clearly defines the term ‘taxable activity’ for the purpose of determining liability under the sales tax regime.
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Retail price defined under Sales Tax Act
Sales Tax Act, 1990 has defined ‘retail price’ as a price fixed for sales of goods to the end consumers.
The Sales Tax Act, 1990 [updated up to June 30, 2020 issued by the Federal Board of Revenue (FBR)] defines the ‘retail price’ with reference to the Third Schedule of the Act, as the price fixed by the manufacturer or importer, in case of imported goods, inclusive of all duties, charges and taxes (other than sales tax) at which any particular brand or variety of any article should be sold to the general body of consumers or, if more than one such price is so fixed for the same brand or variety, the highest of such price:
Provided that the FBR may through a general order specify zones or areas for the purpose of determination of highest retail price for any brand or variety of goods.
The Act also defines the work retailer as a person supplying goods to general public for the purpose of consumption:
Provided that any person, who combines the business of import and retail or manufacture or production with retail, shall notify and advertise wholesale prices and retail prices separately, and declare the address of retail outlets.
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Registered person defined under sales tax
Sales tax laws have defined ‘person’ for determining transactions i.e. supplies and purchases and application of sales tax rate.
The Sales Tax Act, 1990 [updated June 30, 2020 issued by the Federal Board of Revenue (FBR)] explained the following:
(21) “person” means,–
(a) an individual;
(b) a company or association of persons incorporated, formed, organized or established in Pakistan or elsewhere;
(c) the Federal Government;
(d) a Provincial Government;
(e) a local authority in Pakistan; or
(f) a foreign government, a political subdivision of a foreign government, or public international organization;]
(22) “prescribed” means prescribed by rules made under this Act;
(22A) “Provincial sales tax” means tax levied under, Provincial laws or laws relating to Islamabad Capital Territory, which are declared by the Federal Government, through notification in the official Gazette to be Provincial Sales Tax for the purpose of input tax;
(23) “registered office” means the office or other place of business specified by the registered person in the application made by him for registration under this Act or through any subsequent application to the 2[Commissioner];
(24) “registration number” means the number allocated to the registered person for the purpose of this Act;
(25) “registered person” means a person who is registered or is liable to be registered under this Act:
Provided that a person liable to be registered but not registered under this Act shall not be entitled to any benefit available to a registered person under any of the provisions of this Act or the rules made thereunder.
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What is output tax under Sales Tax Act?
Sales tax law has defined output tax as a supply of goods, made by the person.
The Sales Tax Act, 1990 (updated June 30, 2020) issued by the Federal Board of Revenue (FBR) has defined output tax in relation to a registered person as:
(a) tax levied under this Act on a supply of goods, made by the person;
(b) tax levied under the Federal Excise Act, 2005 in sales tax mode as a duty of excise on the manufacture or production of the goods, or the rendering or providing of the services, by the person;
(c) sales tax levied on the services rendered or provided by the person under Islamabad Capital Territory (Tax on Services) Ordinance, 2001 (XLII of 2001).
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Jewelers making cash transactions above Rs2 million liable to comply with FATF conditions: FBR
ISLAMABAD: The Federal Board of Revenue (FBR) has said that jewelers making cash transactions with their buyers and sellers above Rs2 million are liable to monitoring under Anti-Money Laundering (AML)/Countering Financing of Terrorism (CFT), sources said on Thursday.
In this regard the FBR issued guidelines for persons dealing in precious stones and metals.
The procedures have been issued under anti money laundering (AML) and combating financing of terrorism (CFT) and to meet conditionalities of Financial Action Task Force (FATF).
A jeweler is required to retain record of such transactions for at least five years following the completion of a transaction.
Bringing Designated Non-Financing Business and Professions (DNFBP) into AML/CFT laws is one of the major requirements of the FATF. The FBR on September 29, 2020 issued SRO 924(I)/2020 to notify regulations namely Anti-Money Laundering and Countering Financing of Terrorism Regulations for DNFBPs, 2020.
The DNFBPs have been defined as real estate agents, jewelers and accountants.
The latest procedure for compliance by jewelers has also been issued to make this segment into money laundering free business.
The sources said a person engaged in the business of precious stones is not subject to AML/CFT if he is selling or buying jewellery below Rs2 million in cash.
According to the procedures issued by the FBR, if a person is a retail merchant and selling or buying jewellery e.g. rings, bracelets, necklaces and other bodily ornaments may not be a Dealers in Precious Metals and Stones (DPMS) in one year or one month, but the person starts selling or buying such items over Rs2 million threshold, in subsequent years or months, the person would be subject to AML/CFT.
The FBR interprets the Rs2 million threshold as a cash transaction below threshold amount, if the cash transaction is below Rs2 million but is part of a series of transactions related to the purchase of the same item or items totaling Rs2 million or above.
The revenue body said that the business of precious stones and metals may be abused by criminals and terrorists because of a number of factors.
“They can be of very high value, but still very small and therefore very easy to carry, transport and conceal. Transferring ownership does not require any formal registration process unlike for real estate, motor vehicles or share ownership,” the FBR said, adding that the holder of the precious stone and metal is the owner and can be held anonymously without a need for records to be kept.
“In terms of gold, it can be considered as a universally accepted currency and therefore, investing in gold to launder illegal earnings would be easy as well as profitable,” the FBR added.
The FBR also issued similar procedures for real estate agents and accountants.
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Definition of manufacturer or producer under Sales Tax Act
A definition of manufacturer of producer has been included into the Sales Tax Act, 1990 (updated up to June 30, 2020) issued by the Federal Board of Revenue (FBR).
According to the definition “manufacturer” or “producer” means a person who engages, whether exclusively or not, in the production or manufacture of goods whether or not the raw material of which the goods are produced or manufactured are owned by him; and shall include –
(a) a person who by any process or operation assembles, mixes, cuts, dilutes, bottles, packages, repackages or prepares goods by any other manner;
(b) an assignee or trustee in bankruptcy, liquidator, executor, or curator or any manufacturer or producer and any person who disposes of his assets in any fiduciary capacity; and
(c) any person, firm or company which owns, holds, claims or uses any patent, proprietary, or other right to goods being manufactured, whether in his or its name, or on his or its behalf, as the case may be, whether or not such person, firm or company sells, distributes, consigns or otherwise disposes of the goods :
Provided that for the purpose of refund under this Act, only such shall be treated as manufacturer-cum-exporter who owns or has his own manufacturing facility to manufacture or produce the goods exported or to be exported.
It further explains “manufacture” or “produce”, which includes:
(a) any process in which an article singly or in combination with other articles, materials, components, is either converted into another distinct article or product or is so changed, transformed or reshaped that it becomes capable of being put to use differently or distinctly and includes any process incidental or ancillary to the completion of a manufactured product;
(b) process of printing, publishing, lithography and engraving; and
(c) process and operations of assembling, mixing, cutting, diluting, bottling, packaging, repacking or preparation of goods in any other manner.
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FBR exempts entire sales tax on import of 52 fire tenders
The Federal Board of Revenue (FBR) announced on Wednesday the exemption of sales tax and additional sales tax on the import of 52 fire-fighting vehicles.
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Tax cases involving over Rs250 billion decided at various judicial forums: FBR
ISLAMABAD: Tax cases involving over Rs250 billion have been decided at the various judicial forums during the quarter ended December 2020, Federal Board of Revenue (FBR) said in a statement.
The FBR said that it had geared up the efforts for resolving tax cases laying pending at various judicial forums.
As a result of these ongoing efforts, in the last quarter (ending December, 2020) 934 tax cases have been disposed of by the high courts and the supreme court with the revenue involved amounting to Rs81.7 billion.
Moreover, 1240 cases with the revenue involved of Rs168.5 billion have been decided by the Appellate Tribunal Inland Revenue (ATIR) during the same period.
The FBR said that it is making all out efforts by taking several steps to improve the disposal of tax litigation cases pending in different appellate fora including Commissioners Inland Revenue (Appeals), Appellate Tribunal Inland Revenue, High Courts and the Supreme Court of Pakistan.
The FBR has launched the simplified process at the first Appeal i.e. Commissioners Appeals level by implementing the e-filing of appeals since January 01, 2021.
Through e-filing, taxpayers can simply file appeals against an appealable order, online, without hassle of going to their respective field office. Even prior to launching of E-filing, disposal of cases have been surpassing the assigned targets as per the Performance Agreement.
For the period from July to December, 2020, the target of disposal assigned to the CsIR (Appeals) was 7818 appeals against which a total of 17,768 appeals were disposed of which is in excess of the target by a huge margin.
Similarly on FBR’s request, special benches for hearing of tax cases have been constituted by Sindh High Court, Lahore High Court and Islamabad High Court for early hearings and speedy disposal of tax related cases.
In addition to that a new policy has been introduced for the induction of competent lawyers so that government revenue is not left at the stake of amateur lawyers.
It is also informed for the benefit of taxpayers’ that the institution of ADRC (Alternate Dispute Resolution Committee) has also been mobilized by virtue of which taxpayers’ are encouraged to get their cases settled through these committees in a much lesser time and without incurring litigation cost.
So far on application by the taxpayers’ 18 committees have started working for resolution of cases.
FBR further clarifies that by virtue of a major facilitative change in law vide Finance Act-2020, an applicant taxpayer, in order to apply for resolution of case by ADRC, is not required to withdraw his case pending in any other appellate forum.
In order to win trust of the taxpayers’ in this system, the law requires that members of ADRC apart from the relevant Chief Commissioner would also include respectable reputable judges, chartered accountants and businessmen nominated by chambers of commerce.
The committee is also empowered to stay the process of recovery in hardship cases. FBR also clarifies that taxpayers’ application has to be finalized by the Committee within a short period of 120 days which in itself is a big relief considering the usual time taken in various appellate fora before a case attains finality.
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Associates defined under Sales Tax Act 1990
Associates or Associated Persons have been defined under Sales Tax Act, 1990.
Section 2 of Sales Tax Act, 1990 (updated up to June 30, 2020 issued by the Federal Board of Revenue (FBR) explained associates as:
(3) associates (associated persons) means, –
(i) subject to sub-clause (ii), where two persons associate and the relationship between the two is such that one may reasonably be expected to act in accordance with the intentions of the other, or both persons may reasonably be expected to act in accordance with the intentions of a third person;
(ii) two persons shall not be associates solely by reason of the fact that one person is an employee of the other or both persons are employees of a third person;
(iii) without limiting the generality of sub-clause (i) and subject to sub-clause (iv), the following shall be treated as associates, namely: –
(a) an individual and a relative of the individual;
(b) members of an association of persons;
(c) a member of an association of persons and the association, where the member, either alone or together with an associate or associates under another application of this section, controls fifty per cent or more of the rights to income or capital of the association;
(d) a trust and any person who benefits or may benefit under the trust;
(e) a shareholder in a company and the company, where the shareholder, either alone or together with an associate or associates under another application of this section, controls either directly or through one or more interposed persons–
(i) fifty per cent or more of the voting power in the company;
(ii) fifty per cent or more of the rights to dividends; or
(iii) fifty per cent or more of the rights to capital; and
(f) two companies, where a person, either alone or together with an associate or associates under another application of this section, controls either directly or through one or more interposed persons –
(i) fifty per cent or more of the voting power in both companies;
(ii) fifty per cent or more of the rights to dividends in companies; or
(iii) fifty per cent or more of the rights to capital in both companies.
(iv) two persons shall not be associates under sub-clause (a) or (b) of paragraph (iii) where the Commissioner is satisfied that neither person may reasonably be expected to act in accordance with the intentions of the other.
(v) In this clause, “relative” in relation to an individual, means–
(a) an ancestor, a descendant of any of the grandparents, or an adopted child, of the individual, or of a spouse of the individual; or
(b) a spouse of the individual or of any person specified in sub-clause (a).
(3A) “association of persons” includes a firm, a Hindu undivided family, any artificial juridical person and anybody of persons formed under a foreign law, but does not include a company;
(3AA) “banking company” means a banking company as defined in the Banking Companies Ordinance, 1962 (LVII of 1962) and includes anybody corporate which transacts the business of banking in Pakistan;
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FBR to start marking tax stamps from July 2021
ISLAMABAD: The Federal Board of Revenue (FBR) announced a significant step towards curbing counterfeit products and enhancing tax collection through tax stamps.
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