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Sales Tax and Sales Tax Frauds

Sales Tax and Sales Tax Frauds. Muhammad Aamir Ilyas. Basic concepts. Sales Tax is levied and collected under Sales Tax Act 1990. Basic concepts. Rate of Tax is 17% of value of supply Tax is charged, levied and paid by the registered person on supply of taxable goods

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Sales Tax and Sales Tax Frauds

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  1. Sales Tax and Sales Tax Frauds Muhammad AamirIlyas

  2. Basic concepts Sales Tax is levied and collected under Sales Tax Act 1990

  3. Basic concepts • Rate of Tax is 17% of value of supply • Tax is charged, levied and paid by the registered person on supply of taxable goods • Tax period means a period of one month

  4. Input Tax & Output Tax Input Tax: Tax levied on supply of goods to the person Output Tax: Tax levied on supply of goods made by the person

  5. Tax Liability Tax Liability = Output Tax – Input Tax

  6. Tax Liability Tax Liability = Output Tax – Input Tax “A” is a manufacturer who sells taxable goods to “B”; a whole seller. “B” sells goods to a retailer “C” while “C” sells goods to end consumer.

  7. Tax Liability Tax Liability = Output Tax – Input Tax “A” sells taxable goods at Rs. 100 to “B” “B” sells goods to “C” at Rs. 150 “C” sells that goods to end consumer at Rs. 200

  8. Tax Liability Tax Liability = Output Tax – Input Tax For “A” Out Put Tax = 17% of Rs. 100 = Rs. 17 Input Tax = 0 Tax Liability = 17-0 = Rs. 17

  9. Tax Liability Tax Liability = Output Tax – Input Tax For “B” Out Put Tax = 17% of Rs. 150 = Rs. 25.5 Input Tax = 17 Tax Liability = 25.5-17 = Rs. 8.5

  10. Tax Liability Tax Liability = Output Tax – Input Tax For “C” Out Put Tax = 17% of Rs. 200= Rs. 34.0 Input Tax = 25.5 Tax Liability = 34.0-25.5 = Rs. 8.5

  11. Rate of Tax • Rate of Tax on supply of taxable goods is 17% of value of supply • Rate of Tax on supply of zero rated goods is zero percent i.e. exports • No tax on exempt goods i.e. Yogurt, Erasers, Sharpeners etc.

  12. Zero Rated and Exempted goods Tax Liability = Output Tax – Input Tax Tax Liability = 0 – 15 Tax Liability = -15 Registered person will claim refund of Rs. 15 from the department

  13. Zero Rated and Exempted goods Tax Liability = Output Tax – Input Tax Tax Liability = 0 – 15 Supplier of exempt goods can’t claim input tax Refund is not created in case of supply of exempt goods

  14. Tax Invoice • The registered person is liable to issue serially numbered tax invoice at the time of supply of goodscontaining particulars i.e. Date, value exclusive tax, amount of tax, name, address and registration number of supplier

  15. Tax frauds “ means knowingly, dishonestly or fraudulently and without any lawful excuse … doing of any act..omitting to take any action…falsifying the tax invoices…in contraventions or obligations imposed under Sales Tax Act 1990”

  16. Tax Frauds • Tax Evasion • Issuance of fake invoices • Issuance of flying invoices • Refund frauds • Carousel frauds • Innocent parties Cost of carousel fraud to UK alone is $3 billion in a year

  17. Carousal Frauds Imports of cell phone parts Tax = 1 million Conspirator 2/ Buffer Tax = 2-1=1 million Trader in Belgium Conspirator 2/ Buffer Tax = 4-2=2 million Exporter/Conspirator 3 Tax = 0 Refund = 4 m

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