Although the industry contributes substantially to sales tax regime, still there are reports of massive leakage of tax in this industry.
Cane molasses is a major by-product of sugar industry which is either exported by sugar industry or sold locally or converted to ethanol by the sugar industry.
"If the production and sale of molasses is properly recorded, it can be used as an indicator to gauge the production of sugar too," the sources added. Revenue Division had already submitted a proposal to bar sale of cane molasses to unregistered persons and also to bar deduction of input tax in respect of sales made to such a person.
However, in order to further forestall any possibility of such sale to unregistered persons and also to ensure that due tax on such sales is deposited, additional measures are required. In this regard Revenue Division has proposed that sub-section (7) o f section 3 of the Sales Tax Act, 1990, empowers the federal government to specify any person or class of persons as withholding agent(s) for the purpose of deduction and deposit of sales tax at the specified rates and deposit it in the government treasury.
The objective of the provision is to pre-empt the possibility of persons in unauthorized sectors to charge and collect sales tax and avoid depositing it in the treasury. The Sales Tax Procedure (Withholding) Rules, 2007, have been issued by the federal government notifying persons who shall act as Withholding agents, rates for withholding and the related procedure.
Revenue Division proposed to amend the rules, providing that the buyers of cane molasses shall act as withholding agent and shall deduct sales tax at the rate as applicable to supply molasses, which is presently 17 percent.
In October 2018, the FBR, argued that one way to capture sales of an item is to bind the suppliers/persons registered under the Sales Tax Act, 1990, to sell taxable goods only to registered persons. Sub-section (6) of section 8 of the Sales Tax act, 1990, empowers the federal government to notify goods or class of goods which a registered person cannot supply to a person who is not registered. Further, the federal government in exercise of its powers under clause (b) of sub-section (1) of the section 8 can also specify good in respect of which deduction of input tax can be made. In exercise of these provisions, the federal government has issued a notification on June 12, 2014, specifying goods which shall not be sold to a person who is not registered under the said Act and if sold such person shall not be entitled to deduct input tax in respect of such supplies.
Accordingly, the FBR had proposed that the federal government in exercise of powers may add cane molasses to the list of items in the SRO 448(1) 2004 of June 12, 2014, thereby barring its sale to persons not registered and also barring the deduction of input tax in respect of sales made to such persons.
