Sources told Business Recorder here on Saturday that the budget makers are reviewing the budget proposal of the Directorate General, Intelligence and Investigation Inland Revenue for 2017-18. Under existing laws of Income Tax Ordinance 2001 and Sales Tax Act 1990, there is no concept of spot payment as presently done by businessmen of FATA/PATA making taxable supplies to the tariff areas in Pakistan and paying taxes on the spot if intercepted by any FBR agency while entering into tariff areas. Such ad hoc arrangement may be replaced with a full-fledged mechanism for manufacturers operating in non-taxable areas of FATA/PATA and making taxable supplies to the tariff areas in Pakistan. This procedure may include a foolproof system to recover taxes from manufacturers of goods in FATA/PATA when entered into the tariff areas of Pakistan.
According to details, the attention is drawn towards the chargeability of sales tax on goods supplied from FATA/PATA (non-taxable) area. It is brought into notice that the chairman FBR has tasked the Intelligence & Investigation Customs for checking such vehicles carrying out goods from non-taxable areas of FATA and PATA to tariff areas of Pakistan. They stopped a few vehicles but lacked the legal power to search, seize the IR taxes. They, therefore, referred the matter to intelligence IR. The legal aspect of this matter has already been clarified vide the above referred letters issued by the board and the relevant is reproduced as a ready reference:
The person located in FATA/PATA if making supplies of taxable goods (outside tribal areas) is also required to get registered, if he wants to get into the business of taxable supplies in Pakistan, he has the option of voluntary registration under the Sales Tax Act, 1990 and then he should issue prescribed tax invoices and charge sales tax.
The above letters were later on endorsed by another letter issued by the board ...No 2(38)ST-L&P/97 Vol-III dated April 6, 2016 and likewise the Peshawar High Court Peshawar has also adjudged it vide judgement in the writ petition No 916-P/2013 with IR to "....direct the federal government to take necessary steps to formulate a uniform policy for seeking securities from the persons importing goods, consumption and utilisation in FATA or PATA, so that the immunity provided under Constitution is not abused and in case the imported goods are utilised or sold out.... area, than the revenue of the state is recoverable from securities so provided."
In the said judgement the court directed the federal government for appropriate steps to ensure that persons carrying on business in FATA/PATA .....area are offered immunity from the payment of income tax and sales tax under ...provisions. However, it also showed its concern against abuse of this immunity. The federal government/ FBR has yet to implement the court''s order for devising a mechanism to obtain knowledge about the quantity and quality of goods transported by manufacturer/ importer/ traders for sales into taxable territories.
The FBR chairman verbally directed the customs authorities to intercept those vehicles laden with taxable goods entering from Dargai, Malakand (PATA), (non-taxable area) to taxable area. Following these instructions, I&I-Customs intercepted a vehicle laden with steel bars ingots which was handed over to inspector, I&I-IR, Camp Office, Mardan, for further proceedings as per law. Further investigation was carried out under section 176 of the Income Tax Ordinance, 2001 from personnel of the vehicle with regard to ownership of vehicle, destination of the vehicle, ingots laden and sales tax/ income tax paid thereon. Since the taxpayer was not a registered person under the income tax/ sales tax laws and he therefore neither paid the taxes thereon nor has he provided any sales tax invoice thereof. Owner of the goods laden, when asked about the payment of taxes, voluntarily admitted the liability of the goods laden in the truck and showed his consent to pay off sales tax liability. Consequently, he paid an amount of Rs 328,060 @ 19% including further tax. Similarly, five other vehicles/ trucks carrying taxable supplies from non-taxable to taxable areas were intercepted with the help of Customs Intelligence & Investigation. These vehicles were investigated under section 176 with respect to their origin, nature, quality and quantity, value and destination of goods transported from non-taxable to taxable areas. Statements of drivers were recorded as well. Voluntary payment of Rs 71,728 was made under section 153 of the Income Tax Ordinance. In a strictly legal sense, the concept of spot payment is not present in Income Tax Ordinance or Sales Tax Act. Such time and manner of payments is not allowed under IRS laws. However, the payments were made voluntarily, as the owners of the goods were holding a low moral ground and understood the fact that they were consciously evading taxes. Having said this, it is observed that even though the higher courts and the chairman FBR are both cognisant of the situation, the department does not have the legal cover to stop, search, or recover due income tax as well as sales tax. The most important aspect to stop, search, and valuate the goods transported through vehicles has been proposed in the budget proposals.
Since the taxpayer was not a registered person, the online system of FBR was unable to allow deposit of the payment of sales tax liability in the absence of sales tax registration number. Ultimately, the sales tax liability was deposited using Free Tax Number (FTN) of Regional Tax Office, Peshawar. It is, therefore, requested that the online system of FBR may be modified to allow payment of sales tax liability while using CNIC of the unregistered person in absence of STRN.
In the light the facts, a mechanism needs to be devised for the persons carrying on business in FATA/PATA (non-taxable area) making taxable supplies to the tariff areas in Pakistan so that valuation of the goods can be made for the purpose of levy of amount of income tax, sales tax and federal excise duty under the relevant laws, sources added.
Copyright Business Recorder, 2017