Budget proposals 2014-2015: amendments sought to make sales tax audit meaningful

KARACHI: The Large Taxpayers Unit (LTU) has proposed to make the sales tax audit meaningful by an Inland Revenue Officer for imposing penalty and default surcharges besides conducting composite audit of all taxes.
The amendment has been suggested in Section 25 of Sales Tax Act, 1990 regarding access to records and documents etc.
It suggested the drafted amendment as: “(1) the officer of Inland Revenue authorized by commissioner, on the basis of the record, obtained under Section 22, may, within six years after the end of tax period to which the audit relates, conduct audit of the sales tax affairs of an unregistered persons, including the audit of the records maintained under Section 22 and 23 of this Act, and it shall be incumbent upon the registered person to furnish all the documents and records within his possession and control before the officer of Inland Revenue authorized by commissioner for the purpose of conducting audit: provided that in case the commissioner has information or sufficient evidence showing that such registered person is involved in tax fraud or evasion of tax, he may authorize an officer of Inland Revenue, not below the rank of Assistant Commissioner, to conduct an inquiry or investigation under Section 38: provided further that nothing in this sub-section shall bar the officer of Inland Revenue from conducting audit of the records of the registered person if the same were earlier audited by the office of the Auditor-General of Pakistan. Provided further that the audit once conducted would not preclude the officer of Inland Revenue from conducting fresh audit, if required. (2) After completion of the audit under this section or any other provision of this Act, the officer of Inland Revenue may, after obtaining the registered person’s explanation on all the issue raised in the audit may pass an order under section 11 or any other section of this Act, imposing the correct amount of tax, charging default surcharge, imposing penalty and recovery amount erroneously refunded, or any other order as deemed necessary. (3) Nothing contained in any law for the time being in force shall preclude the commissioner from carrying out a composite audit of a registered person under this section 177 or section 214C of the Income Tax Ordinance, 2001 and section 46 of the Federal Excise Act, 2005.”
The LTU has recommended amendment to Section 2(5AB) to remove ambiguity in the language.
The suggested amendment is: “Cottage industry means a manufacturer whose cumulative turnover from taxable supplies made during the last twelve months ending any tax period does not exceed five million rupees or whose annual utility (electricity, gas and telephone) bills during the last twelve months ending any tax period do not exceed seven hundred thousand rupees.”
The unit has suggested an amendment in Section 2(19) of open market price which would bring the nomenclature in conformity with the Income Tax Law.
The suggested amendment is: “Fair market value means the consideration in money which that supply or a similar supply would generally fetch in an open market.”
LTU has proposed an amendment in Section 2(37) of tax fraud in order to prevent the abuse of plea of good faith and the absence of mens rea.
The proposed amendment is: “tax fraud means knowingly, dishonestly or fraudulently, recklessly, and without any lawful excuse (burden of proof of which excuse shall be upon the accused)- (i) doing of any act or causing to do any act; or (ii) omitting to take any action or causing the omission to take any action, including the making of taxable supplies without getting registration under this Act; or (iii) falsifying or causing falsifying the sales tax invoices, in contravention of duties or obligations imposed under this Act or rules or instructions issued there under with the intention of understanding the tax liability or underpaying the tax liability for two consecutive tax period or overstating the entitlement to tax credit or tax refunds to cause loss of tax.”
The unit has proposed an amendment to Section 2(44) of time of supply which would bring it in line with general principle of law of sales of goods.
It suggested the drafted amendment as: “Time of supply in relations to-(a) a supply of goods, other than under hire purchase agreement, means the time at which the ownership over the goods is transferred, or the goods are delivered or made available to the recipient of the supply, whichever is earlier ; (b) a supply of goods under a hire purchase agreement, means the time at which the agreement is entered into; and (c) services, means the time at which the services are rendered or provided.”
The LTU has proposed an amendment to Section 2(46) of value of supply regarding valuation committee which is to make more specific.
It suggested the drafted amendment as: “(a) in respect of a taxable supply, the consideration in money including all federal and provincial duties and taxes, if any, which the supplier receives from the recipient for that supply but excluding the amount of tax paid or payable under this Act: provided that- (i) in case the consideration for a supply is in kind or is partly in kind and partly in money, the value of the supply shall mean the fair market value of the supply excluding the amount of tax paid or payable under this Act-(ii) in case the supplier and recipient are associated persons and the supply is made for no consideration or for a consideration which is lower than the fair market value, the value of supply shall mean the fair market value of the supply excluding the amount of tax paid or payable under this Act; and (iii) in case a taxable supply is made to a consumer from general public on installment basis on a price inclusive of mark up or surcharge rendering it higher than fair market value, the value of supply shall mean the fair market value of the supply excluding the amount of tax paid or payable under this Act. (b) in case of trade discounts, the discounted price excluding the amount of tax; paid or payable under this Act provided the tax invoice shows the discount price and the related tax and the discount allowed is in conformity with the normal business practices; (c) in case where for any special nature of transaction it is difficult to ascertain the value of a supply, the open market price; (d) in case of imported goods, the value determining under Section 25 of the Customs Act, including the amount of customs duties and central excise duty levied thereon; (e) in case where there is sufficient reason to believe that the value of a supply has not been correctly declared in the invoice, the value determined by the valuation committee comprising two representatives of trade and two officers of the Inland Revenue, atleast one of whom shall not be an officer below the rank of Additional Commissioner constituted by the Chief Commissioner; and (f) in case the goods other than taxable goods are supplied to a registered person for processing, the value of supply of such processing, the value of supply of such proceeds goods shall means the price excluding the amount of tax paid or payable under this Act which such goods will fetch on sale in the market: (g) in case of a taxable supply, with reference to retail tax, the price of taxable goods excluding the amount of retail tax, which a supplier will charge at the time of making taxable supply by him, or such other price as the board may, by a notification in the official gazette, specify: provided that, where the board deems it necessary it may, by notification in the official gazette, fix the value of any imported goods or taxable supplies or class of supplies and for that purpose fix different values for different classes or description of same type of imported goods or supplies: provided further that where the value at which import or supply is made is higher than the value fixed by the board, the value at which the import or supply is made.”