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PRESENTATION ON SALES TAX RETURNS AND RULES At The Income Tax Bar Association Karachi By Saud Ul Hassan Saturday, February 16, 2008. t. SCOPE OF PRESENTATION. Registration, Compulsory Registration And Deregistration Credit and Debit Note and Destruction of Goods
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PRESENTATION ON SALES TAX RETURNSAND RULES At The Income Tax Bar Association Karachi By Saud Ul Hassan Saturday, February 16, 2008 t
SCOPE OF PRESENTATION • Registration, Compulsory Registration And Deregistration • Credit and Debit Note and Destruction of Goods • Apportionment of Input Tax • The Sales Tax Special Procedure (Withholding) Rules • Filing of Returns Rules and Returns • Summary of Purchases & Sales
Requirement of Registration • Requirement of Registration Following persons engaged in making of taxable supplies in Pakistan (including zero-rated supplies) in the course or furtherance of any taxable activity carried on by them, are required to be registered - • A Manufacturer whose annual turnover from taxable supplies, made in any tax period during the last twelve months exceeds five million rupees; • Definition of Cottage Industry (Section 2(5AB)) Turnover less than Rs.5 million, or Annual utility bills (electricity, gas and telephone) less then Rs.600,000 • Serial No. 3 of Table 2 of the Sixth Schedule to the Act exempts Supplies made by cottage industry
Requirement of Registration • A Retailer • whose value of supplies, in any period during the last twelve months exceeds five million rupees; • An Importer; • The Federal Board of Revenue (FBR) clarified through letter dated January 11, 2007 that following categories of importers are not required to be registered provided they are not engaged in any other taxable activity relating to taxable supplies or taxable services: • Educational institutions • Government departments • Foreign embassies/consulates • Persons importing vehicles under baggage or gift schemes • Importer of gift or equipment for personal use on one time basis • An importer engaged exclusively in trading/ import of exempted goods
Requirement of Registration • A Wholesaler (including dealer) and distributor; • A Commercial Exporter, who intends to obtain sales tax refund against his zero • rated supplies. • A person required, under any other Federal law or Provincial law, to be registered for the purpose of any duty or tax collected or paid as if it were a levy of sales tax to be collected under the Act. • Persons providing or rendering following services liable to sales tax under the respective Provincial Sales Tax Ordinances – • Services provided or rendered by • 1. Hotels 2. Clubs 3. Caterers • 4. Advertisement on T.V. and Radio • Services provided or rendered by persons authorized to transact business on behalf of others; • 5. Customs agents 6. Ship chandlers 7. Stevedores • 8. Courier Services
Requirement of Registration • Persons supplying or rendering following goods and services are liable to FED under the Federal excise Act, 2005 • Goods as per Second Schedule • Edible oils excluding epoxidized soyabean oil • Vegetable ghee and cooking oil • Services as per SRO 550(I)/2006 • Advertisement • Domestic travel by air (within Pakistan) • Carriage of goods by air • Shipping agents • Telecommunication services
Application for Registration • An application should be made before making any taxable supplies to Central Registration Office (CRO) • Making of taxable supplies without getting registered is considered to be a tax fraud under this Act (Sec 2(37)) • Penalty of ten thousand rupees or five per cent of the amount of tax involved. • Application should be made by an owner, member or director. • Unsold or un-used stocks of tax-paid inputs should be declared. • The CRO may register the applicant and issue a certificate of registration, or reject the application specifying the reasons for such rejection.
Jurisdiction of the Registration • In case of a corporate person (listed public limited company, unlisted public limited company or a private limited company), the area where the registered office is located; • A corporate person have the option to apply for transfer of registration to the Collectorate having jurisdiction where the place of business is located. • In case of a person not incorporated, the area of registration is : • The area where the manufacturing unit is located, • Otherwise where business is actually carried on; and,
Compulsory Registration • An authorized officer, if satisfied that any person is required to be registered under the Act may compulsorily register any person • An opportunity of being heard would be provided before compulsorily registration. • Registration certificate should be delivered to the said person. • A person registered compulsorily is required to • Comply with all the provisions of the Act and rules from the date of compulsory registration. • Otherwise the Collector may take any action required under the law against such person • If subsequently established that such person was not liable to be registered the CRO, shall cancel his registration - In case of cancellation of registration, such person shall not be liable to pay • Any tax, default surcharge or penalty under the Act or rules made there-under. • Sales tax collected excess payable (Section 3B)
Change in the Particulars • Any change in particulars of registration should be notified within fourteen days of such change. • Change of business category as `manufacturer' would be allowed after verification • Approval of the change will be effective from the date of application • Transfer of Registration • The CRO may transfer the registration of a registered person from one Collectorate to another Collectorate or to the LTU or RTO. • On transfer of registration- • All the records and responsibilities transfers to new Collectorate • Sales tax return for the tax period in which the registration is transferred shall be filed in the Collectorate from where the registration is transferred. • A registered person intends to shift his business activity may also apply
Single Registration • No multiple registrations further • Registered person having multiple registration shall apply for single registration • The CRO will ascertain tax liabilities from the concerned Collectorate • The CRO will merge previous registrations and issue a revised certificate • Deregistration • A registered person may apply for cancellation of his registration who • ceases to carry on his business • whose supplies become exempt from sales tax • whose total taxable turnover during the last twelve months remains below the limit specified (manufacturer and retailers) • The LRO on request or on its own initiative may recommend to the CRO to cancel the registration of a registered person on said reasons, and on the reason that • A registered person fails to file tax return for six consecutive months
Deregistration • An audit or inquiry may be conducted before deregistration to ascertain any tax liability • All outstanding liability should be discharged before deregistration • Filing of normal returns not required after the filing of application of de registration (CBR letter dated June 07, 2003) • Final sales tax return would be filed for discharging outstanding liabilities, if any (section 28) • Deregistration effective from the date of deregistration mentioned by the CRO or the date of filing of final sales tax return, whichever is the later.
Blacklisting and Suspension of Registration • The Collector may suspend registration of a registered person through an order on the following reasons • Committed tax fraud • Evaded tax • Failed to deposit the tax due on his supplies • The Collector will hold an inquiry and investigate to confirm the facts and will give an opportunity of hearing to tax payer before blacklisting and suspension of registration • During the period of suspension of registration • Invoices whether issued prior or after such blacklisting by such person would not be accepted for sales tax refund or input tax credit
Credit and Debit Note and Destruction of Goods • A credit and debit note may be issued on the following reasons : • Cancellation of supply • Return of goods • Change in the nature of supply • Change in the value of the supply • Some other event the amount shown in the tax invoice or the return needs to be modified • A buyer would issue a debit note to supplier in case of cancellation or return of supply or part thereof, indicating the following • Name and registration number of the recipient and supplier • Number and date of the original sales tax invoice • Reason of issuance of the Debit Note • Quantity being returned • Value of the supply which has been cancelled or returned as per original invoice • Amount of related sales tax paid thereon • Signature and seal of the authorized person issuing the note. • Supplier would issue a corresponding credit note to buyer
Credit and Debit Note and Destruction of Goods • A supplier would issue a debit note to buyer in case of change in value of supply or amount of sales tax as mentioned in original invoice has increased, indicating the following • Name and registration number of the recipient and supplier • Number and date of the original sales tax invoice • Original value and sales tax as in original invoice • Revised value and sales tax • Difference of value and sales tax adjusted • Reason for revision of value • Signature and seal of the authorized person issuing the note. • Buyer would issue a corresponding credit note to supplier • Buyer shall reduce or increase the amount of input tax corresponding to amount of tax mentioned in the debit note or credit note in respect of supply which has been • Cancelled or returned to the supplier or • Amount of tax was reduced. • Buyer would adjust input tax through the return for the period in which the respective note was issued
Credit and Debit Note and Destruction of Goods • Suppliershall increase or reduce the amount of output tax corresponding to amount of tax mentioned in the debit note in respect of supply which has been • Cancelled or returned to the supplier or • Amount of tax was increased. • Supplier would adjust output tax through the return for the period in which the respective note was issued • Adjustment of reduced output tax and increased input tax would only be available in case the notes have been issued within 180 days of the relevant supply • The Collector may extend the period by a further 180 days • Destruction of Goods • Goods returned on the ground of unfit for consumption should be destroyed by the supplier • With prior permission from the Collector, and • In presence of an officer deputed by the Collector
Apportionment of Input Tax • Apportionment of input tax rules apply to the registered persons who make taxable and exempt supplies simultaneously. • Input tax wholly related to taxable supplies is admissible in full. • Input tax wholly related to exempt supplies is notadmissible completely. • Input tax related to goods utilized for making both exempt and taxable supplies would be apportioned according to the following formula • Value of taxable supplies • Residual input tax credit = ------------------------------------------------ X Residual input tax • on taxable supplies Value of taxable + exempt supplies • 800 • 120 = -------------------------------------------------- X 150 • 800 + 200 • Monthly adjustment of input tax as per these rules is provisional • Final adjustment would be made on yearly basis at the end of each financial year
Sales Tax Special Procedure (Withholding) Rules S.R.O. 660(I)/2007, dated June 30, 2007 • Withholding agents for the purposes of these rules are • Government departments • Autonomous bodies, and • Public sector organizations • Accounting office, which is responsible for making payment against the purchases made by a government department • Withholding agent should indicate in an advertisement or notice that the sales tax would be deducted from the payment against taxable purchase • Withholding agent shall deduct an amount equal to one fifth (20%) of amount of sales tax as shown in the sales tax invoice • Withholding agent would deduct sales tax at 15% of total value of taxable purchases from payments made to unregistered persons • Deducted amount of sales tax should be deposited by 15th of the month following the month during which payment has been made to the supplier
Sales Tax Special Procedure (Withholding) Rules S.R.O. 660(I)/2007, dated June 30, 2007 • Registered withholding agents will deposit deducted amount of sales tax through monthly return • Withholding agent should issue a certificate showing deduction of sales tax to the supplier • Supplier can adjust due credit of the sales tax deducted by the withholding agent • The provisions of these rules shall not apply to the supplies of the following goods and services if made by a registered person • Electrical energy • Natural gas • Petroleum products as supplied by petroleum production and exploration companies, oil refineries and oil marketing companies • Mild steel products • Products made from sheets of iron or non-steel alloy, stainless steel or other alloy steel, such as pipes, almirahs, trunks etc. • Paper, in rolls or sheets • Plastic products including pipes • Vegetable ghee and cooking oil; and • Telecommunication services.”.
Filing of Returns • Single sales tax return STR-7 for all • A return is required to be filed monthly • Commercial importer and retailers filed return on quarterly basis • Due date is 15th day of month following the tax period • Due date for commercial importer and retailers is 15th day of month following the quarter end. • Due date for IPP’s and Petroleum Companies is 25th day of month following the tax period. • Payments shall be deposited before due date of filing of return • In case of no activity a Null return will be filed • Separate returns in case of change in rate of tax during tax period • Revised return may be filed within 90 days subject to approval of Collector • All registered private or public limited companies are required to file an annual return, by 30th September of the relevant financial year.
Filing of Returns • Electronic filing of return is mandatory for LTU Karachi and Lahore jurisdiction and all private and public companies in any Collectorate • Persons registered who come within the jurisdiction of LTU Karachi will e-file return and summary through website www.banxis.com • Remaining tax payers required to e-file return and summary through FBR web portal http://e.cbr.gov.pk/ • All other registered persons will file returns and summary through national bank or at Collectorate counters • A penalty of Rs.100 per day (if return is file within fifteen days of the due date), otherwise Rs.5,000 for late filing of return
Sales Tax & Federal Excise Return Cum Payment Challan • Only companies are allowed to un adjusted amount of input tax, subject to furnishing a statement along with annual audited accounts, duly certified by the auditors, showing value additions less 10% (section 8B(2)) Adjustment or refund of input tax shall be made on yearly basis • Persons excluded from application of section 8B (SRO. 647 of 2007) • Persons registered in electrical energy sector • Oil marketing companies and petroleum refineries • Fertilizers manufacturers • Manufacturers consuming raw materials taxable at the rate of 17.5% or 20% • Wholesalers and distributors • Wholesalers-cum-retailers • Commercial importers
Summary of Purchases & Sales (SRO.559 of 2006) • All registered persons engaged in the import or supply of taxable goods require to furnish a summary of their • purchases and sales made • debit and credit notes • Due date is 15th day of the month following the tax period • Persons engaged in the manufacturing or supply of following are not required to file summary (SRO. 559 of 2006) • Cotton yarn, blended yarn or man-made yarn, textile fabrics, madeups, garments and articles of apparel • leather and articles thereof, including footwear • carpets of all sorts • surgical goods • sports goods • milk, yogurt, cheese and flavoured milk • pens, ball pens and pencils including colour pencils • trucks with g.v.w. exceeding 5 tonnes; and • compost (non-chemical fertilizer)
Summary of Purchases & Sales (SRO.559 of 2006) • Persons engaged in the following activities are not required to file summary (ST Circ No 6 & 7 of 2006) • Hotels/restaurants • CNG stations • Retailers • Persons engaged exclusively in sale and purchase from unregistered persons • Persons engaged exclusively in import-cum-export and making no local purchases/supplies; • Courier services • Registered persons operating exclusively as steel melters (composite melting and re-rolling units are not included) • A Nil in case of no taxable activity • No disclosure of imports and purchases from and supplies to unregistered person • A penalty of Rs.10,000 is payable on non filing of summary