CLARIFICATION REGARDING SRO 603(1)/2009 DATED JUNE 25 2009

Federal Board of Revenue has clarified certain issues relating to SRO. 603(I)/2009 vide their letter dated 19th Aug 2009 which is reproduced hereunder for information and necessary compliance.
  

1)Applicability of the SRO

SRO. 603(I)/2009 shall be applicable on supplies made on or after 1st July, 2009, in pursuance of SRO. 719(I)/2009 dated: 11th Aug, 2009.

2)REQUIRMENTS OF SECTION 7, 8, 8B

Adjustment of input tax will be allowed and appropriate changes are being made in the system for incorporating in the monthly return format.

3)EXEMPTION OF TURNOVER

The Withholding provisions are applicable even to the purchases from un-registered persons.

4)ZERO RATED PURCHASES

Zero rated supplies shall not attract withholding of Tax as amount of Tax in such cases shall be nil. However the persons whose supplies are zero rated may claim the withheld amount as refund along with other input credit.

5)ENTRY IN RCPS

Before the expiration of due date for lodging refund on the basis of returns of July-2009 (to be filed August 25, 2009) necessary change shall be made in the RCPS.

6)OPTION IN RETURN

The option in return is already available to account of purchases and supplies attracting withholding of Sales Tax under SRO. 660(I)/2009 as amended by SRO. 603(I)/2009 dated: 25/06/2009.
 

MEETING WITH FBR

One of the prominent Textile Association had take up the issues arises out of notification 603 i.e. sales tax with holding tax agent rules with the Federal Board of Revenue, the out come of the meeting is reproduced hereunder for understanding  of relevant notification and information.

S.NO

POINTS RAISED

DECISION

1.

Discriminatory Treatment:

It has contended that the persons registered in LTU are to work as withholding agent of Sales Tax whereas the persons registered in Regional Tax Office (whether or not recipient of advertisement services) have been excluded from the purview of withholding of Sales Tax. The above said condition of withholding of Sales Tax is, therefore, discriminatory.

The supplies of textile sector are zero-rated. In the national cause of broadening the tax base is to help FBR in documentation. Thus no discriminatory treatment is meted out to the registered persons of LTU on account of withholding of Sales Tax.

2.

Recipients of Advertisement Services:

There is an impression that the recipient of advertisement services shall withhold tax due on purchase of goods services from un-registered persons whether they are registered in an LTU or an RTO.

The impression is incorrect. The recipients of advertisement services registered in Regional Tax Office are not required to withhold sales tax against the purchase of goods and services except advertisement services.

3.

Application of SRO. 603:

It may be clarified that the withholding provisions will be applicable on goods and services purchased on or after the issuance of the SRO shall attract withholding.

SRO 603(I)/2009 shall be applied on supplies made on or after 01.07.2009, in pursuance of SRO 719(I)/2009 dated: 11.08.2009

4.

Adjustment:

The issue of adjustment of input tax needs clarification with respect to purchases from the un-registered persons.

Adjustment of input tax will be allowed. Relevant rules are being amended and appropriate changes are being made in the system for the monthly return format.

5.

Threshold:

Minimum threshold has not been prescribed which causes serious problems.

Minimum threshold per annum for a supplier of taxable goods is Rs. 25,000/- as definition of "wholesaler" under section 2(247) of Sales Tax Act, 1990is linked to deduction of Income Tax Ordinance, 2001.   

6.

Value of Supply:

Board may clarify the formula for calculation of Sales Tax to be withheld on the value of supplies made by un-registered persons.

The tax to be withheld will be determined by applying the formula of tax fraction as provided in section 2(36) of the Sales Tax Act, 1990.

7.

Declaration and adjustment of Sales Tax withheld:

Board may specify the tax period in which the tax to be withheld and adjusted in the Sales Tax Return.

Sales Tax is to be withheld at the time of payment against the purchases made form un-registered suppliers and same will be declared and adjusted in the monthly return of that tax period.

8.

Extension in Filling of Return:

It was demanded by the delegation of the association that the Board may allow extension in due date of filling of the Sales Tax cum Federal Excise Return for the month of July 2009.

It was assured by the Chairman that if there were any problems encountered by the registered persons on account of issuance of SRO 603(I)/2009 or any other system related impediment, the Board would consider such extension. However at present the Taxpayer may continue filing in normal course as thousands of persons have already filed their returns.  

 UNRESOLVED ISSUES IN NOTIFICATION SRO 603(I)/2009 DT: JUNE 25, 2009

·To deduct applicable rate of sales tax on supplies received from unregistered sources.

·To deduct 1% of value of supplies on supplies received from a person other than LTU person.

·To deduct 16%,  sales tax on advertisement.

1.That Sales Tax Act, 1990 provides legal protection to the small and medium size entrepreneur as a manufacturers and retailers whose annual turnover is less than five million rupees under the Sixth Schedule of the Sales Tax Act, 1990, however, in the instant notification no legal cover in this respect provided to the SME's hence its contradictory and ultra virus to that extent. The FBR needs to review the situation to avoid undue future litigation The board in their clarification to APTMA had only discussion supplies by Wholesaler and its clarification to that extent are correct, however as far as supplies by Cottage industry and retailer is concern the issue remain disputed.

2.That the scope of sales tax withholding tax is further expended through notification 704(I)/2009 by the board and L.T.U. registered persons are required to deduct 1% of value of supplies of their supplier not registered with L.T.U.

That while introducing subject amendment FBR had not kept in mind that certain tax payers are operating under special procedures and in application of this notification huge refunds might accrue. Like in case of commercial importer who suppose to pay applicable rate of sales tax along with 2% advance out put tax on account of value addition at import stage as their full and final sales tax liability hence deduction of 1% sales tax at source could subsequently results in accrual of refund. Like wise persons having application of higher rate of sales tax on their raw material and normal rate of sales tax on finished product could also face the same scenario.

3.         That the supplies of items falling under third schedule of the Sales Tax Act., 1990, which attracts application of sales tax on retail price, does not provided any exclusion from the purview of at source tax deduction, hence deduction of applicable rate of sales tax on such items tantamount to double taxation.

SUGGESTION

It is suggested that for catering genuine hardship, double taxation and undue accrual of refund claims issues arises out of above issue, an "exclusion table of persons" may be provided in notification like provided under notification 647(I)/2007, for smooth and hassle free implementation of aforesaid notification.

It is also observed that while filing sales tax return sales tax with hold by a person give affect of direct payment in same tax period despite having excessive input tax by the taxpayers, since the input tax is already only adjustable to the extent of 90% in terms of section 7 of the Sales Tax Act., 1990, hence we afraid that a trend of huge accumulation of input tax credit may begin which further squeezes down liquidity problem. it is therefore suggested to review the sales tax return and it suitable amended to allow adjustment of sales tax withhold by a tax payer with their available admissible input tax   Crdit.