Credit card information to help check sales at retail outlets: FBR

News Paper: Business Reorder

 

ISLAMABAD (July 27 2010): The Federal Board of Revenue would utilise information of credit cards to check the actual sales at large retail stores and outlets in posh areas across the country to document transactions/turnover of retail shops under 'broadening the tax base plan' for 2010-11.

Sources told Business Recorder here on Monday that the FBR top sales tax official and Member/Value Added Tax/Sales Tax Abrar Ahmed has made recommendations in the FBR board-in-council meeting to broaden the tax base and enhancing both the direct and indirect taxes collection for achieving quarterly revenue collection targets fixed for the field formations. FBR Member ST submitted detailed proposals for documentation of the economy taking into account highest level of non-compliance by the most potential sectors.

Abrar Ahmed Member Sales Tax apprised the board-in-council about the proposals for enhancing the revenue collection during 2010-2011. Firstly, it has been proposed to conduct desk-audit based on information provided by the taxpayers.

The detections made through the desk-audit would help in increasing revenue collection. Secondly, recovery proceedings would be initiated only after the finalisation of the demands on the basis of Inland Revenue Appellate tribunal (IRAT) decisions thereby enhancing the taxpayer's confidence. In this way, revenue would be increased without giving any negative message to the registered taxpayers. Thirdly, information of credit cards would be used for detecting and tracing actual sales of large retail stores.

The enforcement divisions in each Large Taxpayer Unit and Regional Tax Office may take action on the proposal to check transactions taking place through credit cards at the retail outlets. The use of credit cards is extensive in big retail shops in posh areas where such transactions have not been reported to the tax department for determining their actual turnover.

The credit cards data would not only unearth the potential purchasers at such shops, but also check the actual turnover of retailers. If the FBR succeeds in successfully implementing the plan, it would be a major move to document sales/purchases made by elite class and determining actual sales.

However, the proposal could only be implemented at retail outlets having such credit card facility as many retailers have already refused to install Electronic Cash Registers to document their sales. Despite the fact the FBR is ready to offer free of cost Electronic Cash Registers at federal capital, retailers are reluctant to install such machines at their retail outlets. Fourthly, the information retrieved from major data sources like property, vehicles manufacturers and electricity bills would be effectively utilised as a measure of enhancing tax revenues. In this connection, the FBR would specifically focus on the hotels, restaurants sectors where many restaurants are still not properly maintaining record for the tax department to avoid payment of sales tax.

Board-in-Council convened detailed discussion on the proposals of Abrar Ahmed and it was decided that Member Sales Tax would make a detailed presentation on all these proposals before the Tax Reform Group constituted and headed by Federal Finance and Revenue Minister, sources added.

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Punjab ups ST levy to 17 percent: taxpayers in two provinces rendering services in a fix

News Paper: Business Reorder

KARACHI (July 27 2010): The rate of sales tax on services, which has to be uniform in all provinces, has individually been increased in Punjab through Punjab Finance Act 2010, creating problems especially for banking, insurance, and telecom sectors in complying with the law.

In an exclusive talk with Business Recorder, Adnan Mufti, partner, Shekha & Mufti Chartered Accountants and member of Alternative Dispute Resolution Committee said the government of Punjab has increased the rate of sales tax from 16 percent to 17 percent through Punjab Finance Act 2010, creating problems especially for those taxpayers who are rendering services in two or more provinces.

Despite the rate of sales tax on services remaining unchanged in Sindh, the government of Punjab has amended the clause 5 (a) of Punjab Sales Tax Ordinance 2000 through Punjab Finance Act 2010. He said the government of Punjab would now charge sales tax at the rate of 17 percent on taxable services rendered in Punjab; however, the tax remains 16 percent in Sindh.

He regretted that the businesses operating and rendering services in Sindh and Punjab simultaneously might face problems in complying with the law, due to this change. Moreover, he said several services such as banking, insurance, shipping, telecommunication, brokerage houses and advertisement on cable TV are liable to Federal Excise Duty (FED) on a VAT mode meaning thereby, there is sales tax leviable on such services.

But, the Punjab government has again included the aforesaid services in its list through the amendment made to clause 5 of Punjab Finance Act 2010, Mufti added. Resultantly, these service providers are liable to pay double sales tax ie one under the FED Act (a federal legislation) and the other under the Punjab Sales Tax Ordinance 2000 (a provincial legislation), he said, adding that the said amendment would result in taxation to the tune of 33 percent and 36 percent in certain cases, which is extremely harsh and impossible to comply with.

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Revenue collection target not revised

News Paper: Business Reorder

ISLAMABAD (July 26 2010): Ministry of Finance has not revised the ambitious revenue collection target of Rs 1,667 billion for the Federal Board of Revenue (FBR), as the tax authorities have dispatched an annual collection plan (2010-2011) to the concerned FBR members for meeting the monthly and quarterly targets set for current fiscal under the new strategy to focus on priority areas including new registrations with the income tax and sales tax departments.

The annual revenue collection plan disclosed that 20 percent of the total revenue collection target has to be achieved during the first quarter (July-September) of 2010-2011. During the second quarter (October-December) of 2010-2011, the tax machinery would have to collect 22.9 percent of the total revenue collection target. The FBR has to collect 26.8 percent of total revenue collection target during third quarter (January-March) of current fiscal. Over and above 30.2 percent of the total tax projections has to be collected during the fourth quarter (April-June) of 2010-2011.

Sources told Business Recorder here on Sunday that the FBR has fixed Rs 335.9 billion as revenue collection target for first quarter (July-September) of 2010-2011. Out of Rs 335.9 billion, the monthly target for July 2010 has been fixed at Rs 90.1 billion; Rs 102.4 billion for August and Rs 143.4 billion has been set for September 2010.

The FBR has directed the field formations to collect Rs 381.5 billion during the second quarter (October-December) 2010-2011. Break-up revealed that target of Rs 104.3 billion has been set for October 2010; Rs 118.1 billion November and Rs 159.1 billion target has been set for December 2010.

The FBR annual revenue collection plan further revealed that the field formations have to collect Rs 446.1 billion in the third quarter (January-March) of the current financial year. The details of the target set for third quarter disclosed that the tax machinery has to collect Rs 129.7 billion in January 2011; Rs 137.7 billion February and Rs 178.7 billion during March 2011.

The FBR has fixed Rs 503.5 billion as revenue collection target for the fourth quarter (April-June) of 2010-2011.

Break-up revealed that target of Rs 137 billion has been fixed for April 2011; Rs 142.8 billion for May and Rs 223.7 billion has been set as revenue collection target for June 2011.

The quarter-wise tax projections set for 2010-2011 showed that the total amount of revenue collection target comes to Rs 1667 billion which is the original target set by the government for the FBR in budget (2010-2011). So far, the Finance Ministry has yet not revised downward the annual target of the FBR. The quarterly tax projections have been communicated to all FBR members including Members Domestic Operations (North/South).

Sources said that the revenue projections have been based on 16 percent estimated growth during current fiscal. The measures and actions planned for achieving the revenue collection target included effective audit, recovery of outstanding and current demands and arrears. The enforcement plan included registrations of new taxpayers with the income tax and sales tax departments. The reduction in the overall number of non-filers, stop-filers and short-filers of income tax and sales tax/federal excise returns would remain as one of the priority areas for meeting the revenue target, FBR added.

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Import of new cars: CCP seeks reduction in customs tariff

News Paper: Business Reorder

ISLAMABAD (July 25 2010): The Competition Commission of Pakistan (CCP) has recommended that the customs tariff on import of new cars must be reduced across the board to curtail protection to manufacturers, bringing it down to 5-10 percent as presently car importers are paying excessively high duties at the import stage.

A competition impact assessment study on automobile issued by the CCP on Saturday recommended that the atmosphere of competition could be improved significantly by allowing import of new cars at lower prices. This should be pursued along with the current investment policy to attract other car manufacturers in the country.

The scientific study recommended that the benefits of lowering tariffs on new cars will be manifold. One, it will make available greater options for the consumers who are currently stuck between a handful of models thereby increasing interbrand competition. Two, it will introduce new technology in Pakistan and improve safety standards.

Three, it will force the local manufacturers to compete in the local market, improving quality and decreasing price. Four, it will enable the car dealership and parts and after sales services market to develop to cater to the increasing variety of cars and technology.

These benefits will outweigh any other potential concerns regarding foreign exchange, loss of jobs and investment. In fact the local manufacturers are quick to point out that increasing prices are due to changes in exchange rate. Therefore there should not be any adverse affect on the foreign exchange reserves. If at all there is, it will be minimal.

The report made suggestions to increase both intra- and interbrand competition in the market and allow for greater market efficiency. It further recommended the change in market supply chain structure and terms applicable to purchasing vehicles:

The industry must move from a reactive demand-based model to a proactive supply based model in order to make it more competitive. As is the case with most manufacturers in developed countries, including Honda, Toyota, and Suzuki, customers place their orders directly with the manufacturers via Internet. This creates a direct linkage between the two, reducing the role of dealers, and helps the manufacturer in the inventory management and production planning process.

Consistent and long-term policies: The policy environment requires continuity, consistency and connectivity. Any change in the policies should be made giving due regard to the consumers and the prompt technology transfer rather than protecting the manufacturers/assemblers, the CCP added. The CCP observed that the absence of competition has let the local car industry to dictate the prices and Pakistani car market only has three major players, each of which dominates a different segment of the market based on the size of the car.

The assessment study on automobile further revealed that the concern vis-à-vis competition is the division of the market among the three players in the passenger car market, the steady market shares each of them enjoyed in the last decade, signifying a lack of competition. Clearly, any loss of competition in the market is bad news for the consumers, who have the same limited choices albeit at rising prices.

The absence of competition has let the local industry to dictate the prices. The continuous price increases of local automobiles since 2006 has put new cars out of range of middle-income groups. Statistics depict a fall in sales on year-on-year and on a month-on-month basis but the prices have shown an upward trend - Honda, Indus Motors and Pak Suzuki increased their prices thrice in 2008.

It seems that the local assemblers have adopted a strategy of increasing profits on limited production instead of increasing volumes. Most carmakers have been announcing plans to increase production volumes over the next few years but these plans have yet to come to fruition and the problem of late delivery of cars remains unchanged as a source of dissatisfaction among buyers.

It has not been uncommon for customers to pay additional money to ensure delivery of their vehicles within a short time period. Alternatively, customers pay the full price of the vehicles months in advance and the assemblers get benefits from their tied investment.

In the downstream market, dealers of the manufacturers/assemblers act as mere agents and have no real incentive to compete in the market. Study of the dealership agreements revealed, it is the company that controls the quantity to be sold and the price to be charged. These dealership agreements go on to eliminate intra-brand competition by disallowing discounts, the CCP study said.

It further said that faced with low volumes, under-utilisation of capacity, high prices, late deliveries, premiums, and slow transfer of technology, effective competition in the automobile sector is much more needed now than ever before to keep the industry afloat.

The CCP study said that the Automotive Mission Plan (AMP) 2006-2016 is a ten year plan that lays out its objectives in its vision quite clearly. The vision states "To emerge as the destination of choice in the world for design and manufacture of automobiles and auto components with output reaching a level of US $145 billion accounting for more than 10% of the GDP and providing additional employment to 25 million people by 2016." The vision thus spells out clearly the goal that the Indian automotive sector wants to achieve by 2016. Below we discussion some of the main policy features of the AMP.

Tariff Rates: It has been globally acclaimed that appropriately designed tariff structures attract investors. High tariff structures usually restrict flow of trade but may attract investment if the domestic market is big enough and growing at a high rate.

The prevailing bound rates at the initial stages of this Plan for the Commercial vehicles (Trucks and Buses) and MUVs (Multi Utility Vehicles) is 40 % and the tariff being 12.5%. Compared to advanced countries, the tariff rates in India are set at a much lower level for example tariff on trucks in USA is 25% and countries in EU have a tariff rate set at 22%. Thus the Government would examine and set the tariff rates for commercial vehicles in the future in this perspective.

India has also undergone negotiations of foreign trade agreements (FTAs) and preferential trade agreements (PTAs) with several regions and countries like Asean/Thailand/Singapore/Malaysia/China/Korea/Japan/BIMSTEC/Bangkok agreement, SAFTA/Sri Lanka/Mauritius/Chile, SACU/ Egypt and Gulf co-operation council. In the negotiations, care will be taken in deciding which tariff lines should be included. For a clear definition of the PTAs and FTAs care should be taken in preventing pass through imports from non- participating economies and trade deflections which may result from differential duty structures.

An unrestricted import of vehicles is likely to have an adverse impact on local manufacturing, GDP and employment. The government will also discourage the imports of used/ remanufactured vehicles and auto components in this category will not be treated as new.

The government will also provide incentives to the automobile manufacturers who produce vehicles suitable to be driven by the physically handicapped persons, the CCP added. Referring to Indian industry, the CCP said that the growth in the Indian auto industry is attributed to rising per capita income. Demographics have also helped since 70% of the Indian population is under 35 years of age. This implies a presence of a young population eager to be mobile than its older generation.

Within the sector, the growth can be attributed to more specific reasons. Commercial vehicle segment has grown primarily due to an increase in road infrastructure investments in the country. Better and cheaper access to credit has helped consumers across the board in securing vehicles of their choice. Growth in the two wheeler market has increased due to urbanisation.

Similarly, the demand for two-wheelers has also increased in the semi-urban and rural areas due to increase in income levels and availability of cheaper financing options. Besides growth in vehicles market, the auto component industry has also registered high growth rates. This is primarily due to the direct link this particular industry has with the manufacturing industry. 65% of auto component industry's sales are to the OEM, the CCP added
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Rs 400 million FED liability raised against cellular firm challenged

News Paper: Business Reorder 

ISLAMABAD (July 25 2010): A huge amount of tax liability of Federal Excise Duty (FED) under Sales Tax mode, raised against a leading cellular company by Large Taxpayer Unit (LTU) Islamabad, has been challenged where provisions of section 36 of the Sales tax Act 1990 have been invoked to create a demand of over Rs 400 million against the company.

Sources told Business Recorder here on Saturday that the section 36 of the Sales Tax Act is related to assessment of tax in case any unusual thing has been detected during audit proceedings under Sales Tax Act 1990. In this case, the order passed by the LTU Islamabad under section 36 of the Sales Tax Act is time barred for over 100 days. The FBR has to explain as to how they can extend the limitation under section 74 of the Sales Tax Act when original limitation under section 36 has been expired.

Details revealed that in the case of leading cellular company, the LTU Islamabad has passed an order on a show cause notice issued in 2007 in sheer disregard to the limitations prescribed under section 36 (1) of the Sales Tax Act, 1990 (Act) and thereby creating a demand of over and above Rs 400 million.

It has been learnt from reliable sources that a show cause notice was issued in May 2007 by the then Additional Collector of Sales Tax of the Collectorate of Rawalpindi; however, no order was passed within the prescribed limitation u/s 36(3) of the Act ie, within 180 days from the date of issuance of the show cause notice.

The Large Tax Payers'' unit Islamabad reinitiated the proceedings on the cellular company in March 2010 after obtaining alleged condonation u/s 74 of the Act from the Federal Board of Revenue. It was argued by the cellular company that the proceedings were barred by limitation but the Additional Commissioner without adhering to the legal provisions passed the order on June 30, 2010 and created a demand against the company to be paid instantly.

The Order in Original was challenged in writ jurisdiction before the Lahore High Court, Rawalpindi bench on July 23, 2010. The petition was heard by Justice Asad Munir; who after hearing at length issued notice to the tax department for a date in August for filing the Para wise comments; however, in the meantime the operation of the order in original was suspended.

It was argued before the learned judge that no order u/s 36 (1) & (2) of the Sales Tax Act can be passed after the lapse of 90 days of the issuance of the show cause notice or within the extended time of 90 days by the Collector/Commissioner after giving reasons in writing. No such extension was allowed. It was further argued that the limitation is to be extended before the expiry of the statutory period of limitation and not after the expiry of the limitation as this had created a vested right with the petitioner to not to be assessed beyond the limitation.

The learned counsel further argued the power of condonation with the FBR u/s 74 of the Act can also not be exercised arbitrarily. The FBR has to record reasons for extension in time and that to well before the expiry of the original limitation period. The judge noted that no reason for extension in time of 1055 days after the expiration of original limitation was given, therefore, the FBR must explain the position to have exercised the powers u/s 74 of the Act, sources added

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RTO Karachi collects Rs 418.34 million on scrips trading during fiscal year 2009-10

News Paper: Business Reorder

 KARACHI (July 25 2010): The revenue collection, made on scrips' trading under section 233A of Income Tax Ordinance 2001, has witnessed 16 percent growth during fiscal year 2009-10. According to an official statistics made available to Business Recorder here on Saturday unveiled that the Regional Tax Office (RTO), Karachi has collected Rs 418.34 million during FY 2009-10 against the collection of Rs 359.32 million made in FY 2008-09.

The collection made on account of profit on debt from banks and other securities were stood at Rs 6.48 billion and Rs 878 million, respectively, depicting some 39 percent and 35 percent growth in FY 2009-10. Similarly, the department has accumulated Rs 1.467 billion during July 2009 to June 2010 period against dividend income, which was collected at the rate of 10 per cent under section 150 of the Income Tax Ordinance 2001, showing 112 percent growth comparatively to the collection of Rs 692.73 million made in FY 2008-09.

The statistic further said the Karachi RTO has witnessed 23 percent growth on account of direct taxes as Rs 125.12 billion was collected during FY 2009-10, surpassing the collection of FY-2008-09 by Rs 23.66billion. The phenomenal growth was witnessed in some other heads; 53 percent in rentals, 38 percent in prize bonds, 14 percent in withdrawal from banks, 127 percent in the commission on advertising agents, 27 percent in indenting commission in foreign exchange and 881 percent in miscellaneous.

Furthermore, the collection made from returns and advance tax has shown 19 percent and 52 percent decline respectively during last fiscal year. In the same way, the negative trend in revenue collection persists in several other accounts, including out of demand, arrear demand, current demand and minimum tax payments.

When contacted, official sources, said although the budgetary target of RTO was unrealistic, the department has managed to achieve it successfully because of effective monitoring. They further said the Karachi RTO has also surpassed the budgetary target of indirect taxes by collecting Rs 18.884 billion on account of sales tax and Rs 2.48 billion in the head of federal excise duty during FY 2009-10

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Government seeks to evolve consensus: meeting on reformed GST on July 27

News Paper: Business Recorder

ISLAMABAD (July 24 2010): The federal government has convened a high level meeting on July 27 taking all the political leadership on board to resolve the thorny issue of reformed general sales tax (GST) on services, necessary for broadening the tax base and generating ample resources to carry forward development agenda.

Sources told Business Recorder here on Friday that the meeting to be chaired by the Prime Minister, which will be attended by all four provincial chief ministers. The political leadership at the federal and provincial level would finally have to develop a broader consensus to settle the issue of reformed GST on both goods and services amicably, so as to save the IMF programme under which Pakistan has committed introduction of reformed GST from October 1, 2010, sources said.

Details revealed that a meeting of provincial finance secretaries held at Ministry of Finance with Secretary Finance Salman Siddique in the chair reviewed the overall fiscal position of the federal and provincial governments. The introduction of reformed GST also came under discussion. Finance Secretaries of Punjab, Khyber Pukhtunkhwa and representatives from Sindh and Balochistan participated in the meeting. The introduction of reformed GST emerged as a major issue due to the government commitment with the IMF to raise tax-to-GDP ratio by introducing integrated reformed GST on goods and services from October 1, 2010.

During the meeting, it was observed that any breakthrough on reformed GST on goods and services in integrated manner and collection rights with the FBR would greatly help in keeping the growth momentum intact. However, the province of Sindh is still reluctant to allow federal government to collect reformed GST on services and is still planning to collect reformed GST on services itself.

Sources said that Sindh has denied any agreement in principle with the federal government on introduction of integrated reformed GST. However, sources said that Sindh is also cognisant of the difficulties to be faced by the country on non-introduction of reformed GST in integrated manner on goods and services by the federal government.

According to an official, representative of Sindh has informed the meeting that entire situation would be brought to the notice of the political leadership of the province so as to take a final decision on reformed GST on services. During the meeting, it was informed to the provinces that they should maintain fiscal discipline to keep the expenditures within stipulated limits so that budget deficit could be kept at targeted level during the ongoing fiscal year. The meeting also stressed upon the provinces to help the federal government in its endeavours to increase tax-to-GDP ratio as the country needs domestic resources to reduce the reliance on foreign loans in the medium and long term.

During the meeting, Finance Secretaries of Punjab and Khyber-Pakhtoonkhwa have requested the Ministry of Finance and the Federal Board of Revenue (FBR) to resolve the issue of sales tax on services. The issue came to the light during a monthly meeting of Finance Secretaries chaired by Secretary Finance Salman Siddque held at the Ministry of Finance here on Friday. FBR Chairman Sohail Ahmed and his team of tax managers were also present in the meeting. Finance Secretaries of Punjab and Khyber-Pakhtoonkhwa represented their provinces whereas other senior officials of the provincial Finance Ministries of Sindh and Balochistan were also present.

Punjab and Khyber-Pakhtoonkhwa also pointed out that the FBR and the Finance Ministry should submit a resolution of the issue as telecom companies have started approaching the concerned authorities of Punjab and Khyber-Pakhtoonkhwa to obtain legal viewpoint on the applicability of sales tax on services.

Sources said that the representatives of the provinces would submit the update to their Chief Ministers for expected meeting on the reformed general sales tax (GST) on July 27, 2010. The Chief Finance Secretaries would take into account their political leadership into confidence on the issue of sales tax on services. So far, no decision has been taken as it was a preliminary meeting to discuss the issue of sales tax on services besides other financial issues. The provincial finance secretaries would also discuss the issue with their legal experts for submission of recommendations on the status of services on the reformed GST. The FBR officials informed the meetings about the necessity to introduce reformed GST from October 1, 2010, sources added

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