KTBA seeks Necessary Clarifications in Sales Tax, Income Tax Laws

KARACHI: Karachi Tax Bar Association has sought several key clarifications in respect of amendments introduced through Finance Act 2019 particularly definition and use of term “registered person”.

The clarifications were sought through a letter written to Chairman FBR, the text of which is reproduced here as under.

Text of the Letter:

“To Syed Muhammad Shabbar Zaidi”

 Chairman Federal Board of Revenue Islamabad.

CLARIFICATIONS ON 2ND TAX LAWS AMENDMENT ORDINANCE, 2019

We at KTBA take the due cognizance of the continuous and relentless efforts being taken by your office for the necessary broadening of the tax filer’s base in the country. The issuance of the instant Ordinance also reflect the whole catena of your efforts on this front.

 There has arisen a necessity for a few clarifications in order to dispel any confusion in this regard. The same are being narrated down here under for your perusal.

SALES TAX LAW: Sale to Unregistered Person or Persons; (i) Sub-section 4 has been added to section 73, where by sales to an unregistered person by a registered manufacture cannot be made for more than Rupees 10 million in a month and Rupees 100 million in a year, failing which input tax will be disallowed proportionately. Relevant section 73 (4) is reproduced below for ready reference:

“(4) A registered manufacturer shall make all taxable supplies to a person who has obtained registration under this Act excluding supplies not exceeding a value of one hundred million Rupees in a financial year and ten million Rupees in a month, failing which the supplier shall not be entitled to claim credit adjustment or deduction of input tax as attributable to such excess supplies to unregistered person.” Considering the implication of the phrase of “unregistered person” [i.e. singular term] used in drafting of the law, instead of the phrase “unregistered persons [plural term], it implies that the restriction is applicable on sales to a single unregistered person instead of cumulative sales to all unregistered person(s).

In order to ensure that intent of law is not suffered by any legal infirmity due to any unintended or inadvertent drafting, the clarification must be issued in this respect on urgent note.

SALES TAX LAW: Sale to unregistered or liable to be registered; (ii) In addition to the above, it should also be clarified as to whether the all unregistered person will be effected or only those unregistered person who actually were required to be registered in Sale Tax but didn’t ? In the event, the law is intended to cover all unregistered persons, without any discrimination, certain serious ramification would follow because of the fact that Manufacturers won’t be able to make sale to various Government/other authorities, armed forces hospitals, Universities, Charities & EPZ entities, which by law, are not required to be registered at all, in the first place. For example, if Federal Board of Revenue (FBR) itself has to procure/purchase 3 motor vehicles worth Rupees 3.5 million each from a manufacturer, that local manufacturer would not be able to execute such sales to FBR as otherwise its input tax will be disallowed. It would not be out of context to mention here that above entities, institutions and & authorities are not liable to pay to further tax as well, while purchasing from registered manufactures.

It is, therefore, important to define the category of unregistered person who should not suffer due to any adverse implication of the law. Hence, a clarification is necessitated in this context.

INCOME TAX: Issuance or Non Issuance of Business License (iii) Section 181D was introduced by Finance Act, 2019 wherein it was stated that “every person engaged in any business, profession or vocation shall be required to obtain and display a business license as prescribed by the Board.” Through the Tax Laws (Second Amendment) Ordinance, 2019, various penalties have been prescribed for person who has not obtained business license, while the procedure to obtain business license has not been prescribed as yet. It is, therefore, not possible to get a Business License either for any person or for any tax commissioner to issue one. It may be recalled here that an unnumbered and undated draft SRO was issued by the FBR in the month of July 2019, whereby Draft rules 83A to 83E were proposed to be inserted in the Income Tax Rules, 2002 for the purpose, which however, to our knowledge, has not been finalized as yet.

Moreover, in the draft rule 83C(4) of the above referred SRO, it was stated that “Where a person’s name is appearing in the active taxpayers’ list (ATL), he shall be treated to have filed application and the system generated business license shall be emailed to his email address registered in IRIS.” Accordingly, it would not be erroneous to carry an understanding that persons appearing in Active taxpayers list (ATL) are not required to apply for issuance of business license separately. It would, therefore, be all befitting that in order to avoid any dispute in future, the rules on the subject are finalized with the same spirit.

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