GST seeks sweeping powers against tax evaders

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ISLAMABAD: Seeking sweeping powers for tax authorities against the tax evaders and approval of 10 percent surcharge on income tax, the government tabled the General Sales Tax Act 2010 in parliament on Friday.
Amidst the rumpus by the opposition in the House, Minister for Finance and Economic Affairs Dr Abdul Hafeez Shaikh moved the bill, saying the federal government was in an immediate need of additional local resources to relieve pressure on the budget caused by extraordinary demands for expenditures relating to the rehabilitation of the large number of internally displaced citizens.
The bill sought an approval to levy 10 percent surcharge on income tax, payable for the tax during the current financial year, and an increase in the rate of special excise duty from one percent to two percent under the Federal Excise Act 2005. The proposed new GST system will reduce standard sales tax rate to 15 percent and increase exemption threshold to Rs 7.5 million.
The finance minister said the existing sales tax system had not performed well to broaden the tax base. The reformed GST, which would replace the present Sales Tax Act 1990, is a modern form of the value added tax, free from distortions or inequalities. The act would provide appropriate provisions to collect and administer provincial sales tax on services in an integrated manner, along with the federal sales tax, as and when authorised by the provinces.
The bill also aims to reform the sales tax regime by introducing a broad-based tax on sales and purchases of goods in all areas of Pakistan and on services in the Islamabad Capital Territory on an integrated basis. Shaikh said taxes on sales and purchases of services specified by the provinces would form a broad based and integrated tax regime on consumption in the country.
He said the act curtailed exemptions mostly to basic food items, charities and international sovereign commitments, but provided no general zero rating facility to local consumption. It would promote documentation of the national economy and broaden the base of consumption taxation, the finance minister said, adding that exempted supplies and imports included life saving drugs as specified by FBR, diapers for adult patients, ambulances and firefighting trucks, dextrose
and saline infusion giving sets along with empty non-toxic bags for infusion solution, as well as dextrose and saline infusion giving sets, artificial body parts, intra-ocular lenses and glucose testing equipment and contraceptives.
The tax-exempted food items include packed and unprocessed peas, pulses, rice, wheat and wheat flour, poultry, meat, fish and crustaceans, eggs, live plants, including bulbs and roots, except bottled, canned or packaged under brand names, edible vegetables and fruits, red chillies, ginger, turmeric, fruit juices, ice and water, table salt and cereals and products of milling industries.
Vegetable ghee and cooking oil, on which excise duty is charged by a registered manufacturer or importer, are also proposed to be exempted. The holy Quran in whatever form or in any media is exempted from sales tax. Books including brochures, leaflets and similar printed matter, children’s picture, drawing or colouring books, music printed or in manuscript form, maps and hydrographic or similar charts, newspapers and periodicals, other than material wholly or predominantly devoted to advertising are proposed to be exempted from GST.
Also, sweeping powers have been proposed for tax authorities where they can seal the businesses and stop removal of goods from the business premises of the defaulter or the associated person until the recoverable amount is paid or recovered in full. The bill says that where any amount of tax is due from any person, a tax officer may take actions to recover such an amount, including deduction of the amount from any money owing to defaulter at his disposal or under his control or under the control of FBR.
For the purpose of recovering unpaid amounts of tax recoverable under this act, the tax officials are proposed to have powers similar to a civil court to recover the amount due under a decree under the Code of Civil Procedure, 1908. If any registered person is declared bankrupt, his outstanding tax liability shall pass on to the estate in bankruptcy, whether or not it continued to operate as a business.
Where any private company or business is wound up and any tax chargeable on the company or business, whether before or in the course or after its liquidation, in respect of any tax period or periods cannot be recovered from the company or business, every person who was the owner, or partner in or director of the company or business during the relevant period or periods, shall jointly and severally be liable for the payment of such a tax.
The FBR may conduct audit, including forensic audit, of any registered person by giving an advance notice. An officer of Inland Revenue may enter any premises or place where any stocks, records, accounts or documents required under this act are kept or maintained and take into his control such records, accounts or documents. A proper “Register of Arrests” shall be maintained.
The draft act says a registered person who makes a taxable supply to another registered person shall issue a serially-numbered, true and correct tax invoice for the supply. A registered person shall file a tax return for each tax period no later than fifteen days after the end of the period. Upon late filing or non-filing of the return, a penalty of Rs 5,000 is proposed and if a return is not filed within 15 days of the due date, a penalty of Rs 100,000 per day of default is proposed.
On non-maintenance or defective maintenance of records, the draft recommends a fine of Rs 10,000 or five percent of the amount of tax involved, whichever is higher. In failure to notify changes of address or increase in business capacity of material nature in the particulars of registration, a fine of Rs 5,000 is proposed.
About the administration and collection of provincial sales tax, the act proposes that where a provincial sales tax law authorises FBR to administer, regulate and collect the tax, the board shall ensure that the provincial and federal sales tax operate together as an integrated tax regime.
The provisions of the act relating to penalties, offences and default surcharges will apply, irrespective of whether the tax payable or adjustments allowable relate to supplies of goods and services, and irrespective of whether the tax is payable under this act, a provincial sales tax law or under one or more such laws.