The items Exempt/Zero Rated under the Sales Tax Act, 1990 but Proposed to be taxed under the Reformed General Sales Tax Bill, 2010.

December 5, 2010

gstechlive Reformed General Sales Tax , , , , 1 Comment

Table I

(Imports and Supplies)

 

Serial No Description Heading Nos. of the First Schedule to the Customs Act, 1969 (IV of 1969)
(1) (2) (3)
1. Seeds, fruit and spores of a kind used for sowing. 1209.1000, 1209.2100, 1209.2200, 1209.2300, 1209.2400, 1209.2500, 1209.2900, 1209.3000, 1209.9110, 1209.9120, 1209. 9130, 1209.9190 and 1209.9900.
2. Milk preparations obtained by replacing one or more of the constituents of milk by another substance, whether or not packed for retail sale. 1901.1000, 1901.9020 and 1901.9090
3. Poultry feed and Cattle feed including their all ingredients except soyabean meal of PCT heading 2304.0000 and oil-cake of cottonseed falling under PCT heading 2306.1000. 2301.2090, 2305.0000, 2306.2000, 2306.3000, 2306.4100, 2306.5000, 2309.9010, 2309.9020, 2309.9090, 2936.2100, 2936.2200, 2936.2300, 2936.2400, 2936.2500, 2936.2600, 2936.2700 and 2936.2800
4. Surgical tapes 30.05
5. Ultrasound gel 3006.7000
6. Glass bangles 7020.0090
7. Bricks. 6901.0000
8. Building blocks of cement including ready mix concrete blocks. 6810.1100
9. Incinerators of disposal of waste management, motorized sweepers and snow ploughs. 8417.8000, 8430.2000 and 8479.8990
10. Computer software. 8523.2990, 8523.4010, 8523.4090, 8523.5990 and 8523.8090
11. Aircrafts and their spare parts 8802.2000, 8802.3000 and 8802.4000
12. Ships of gross tonnage exceeding 15 LDTs including their spare parts, excluding those for recreational or pleasure purpose. 8901.2000, 8901.3000 and 8901.9000
13. Goods supplied to hospitals run by the Federal or Provincial Governments or charitable operating hospitals of fifty beds or more or the teaching hospitals of statutory universities of two hundred or more beds. Respective headings
14. Defence stores, whether manufactured locally or imported by the Federal Government against foreign exchange allocation for defence, including trucks, trailers and vehicles falling under PCT heading 87.04 of the First Schedule to the Customs Act, 1969 (IV of 1969), specially modified for mounting defence equipments, their parts and accessories for supply to Armed Forces. Respective headings
15. Equipment and Machinery for pilotage, salvage or towage for use in ports or airports. Respective headings
16. Equipment and Machinery for air navigation. Respective headings
17. Equipment and machinery used for services provided for handling of ships or aircrafts in a customs port or Customs airport. Respective headings
18. All plant and machinery. Respective headings
19. Tractors, bulldozers and combined harvesters; and components (which include sub-components, components, sub-assemblies and assemblies. Respective headings
20. Import and supply of fully dedicated CNG Euro-2 buses whether in CBU or CKD condition. 8702.9010 and 8702.9090
21. That following Agriculture Implements and machinery:-

(1) Rotavator.

(2) Cultivator.

(3) Ridger.

(4) Sub soiler

(5) Rotary slasher.

(6) Chisel plow.

(7) Ditcher.

(8) Border disc

(9) Disc harrow

(10) Bar harrow

(11) Mould board plow

(12) Tractor rear or front blade.

(13) Land leveller or land planer

(14) Rotary tiller.

(15) Disc plow

(16) Soil-scrapper.

(17) K.R.Karundi.

(18) Tractor mounted trancher

(19) Land leveller.

(20) Seed-cum-fertilizer drill (wheat, rice barley, etc.).

(21) Cotton or maize planter with fertilizer attachment

(22) Potato planter.

(23) Fertilizer or manure spreader or broadcaster

(24) Rice transplanter.

(25) Canola or sunflower drill

(26) Sugarcane planter

(27) Tubewells filters or strainers

(28) Knapsack sprayers

(29) Granular applicator.

(30) Boom or field sprayers.

(31) Self propelled sprayers

(32) Orchard sprayer

(33) Wheat thresher

(34) Maize or groundnut thresher or sheller.

(35) Groundnut digger.

(36) Potato digger or harvester.

(37) Sunflower thresher.

(38) Post hole digger.

(39) Straw balers

(40) Fodder rake

(41) Wheat or rice reaper

(42) Chaff or fodder cutter.

(43) Cotton picker

(44) Onion or garlic harvester.

(45) Sugar harvester.

(46) Tractor trolley or forage wagon

(47) Reaping machines.

(48) Combined harvesters

Vegetables and fruits cleaning and sorting or grading equipment.

(49) Fodder and feed cube maker equipment.

(50) Machinery and equipment for grain handling and storage facilities.

(51) Milking machines.

(52) Compression-ignition internal combustion piston engines (diesel engines of 12HP to 32 HP of PCT

8408.9000)

 Respective headings.
22. Diagnostic Kits, as listed below:-

(1)      HIV Kits

(2)      4C Es Trionyx

(3)      5C Cell control Lnormal

(4)      Bovine precision multi sera

(5)      Pregnancy test

(6)      DNA SSP DRB GenericIC

(7)      Reticulocyte count (control) Retic C Control

(8)      Kit for vitamin B12 estimation

(9)      Ferritin kit

(10)   HEV (Hepatitis E virus)

(11)   ID-DA Cell

(12)   Urine Analysis Strips

(13)   Albumin bcg

(14)   Cratinin sysi

(15)   Ring

(16)   Detektiion cups

(17)   ISE Standard

(18)   Alkaline phosphatase (Alb)

(19)   Bilirubin kit

(20)   HDL Cholesterol

 3822.0000
23. Fertilizers and their ingredients as listed below:-

(1)      Animal or vegetable fertilizers, whether or not mixed together or chemically treated; fertilizers produced by the mixing or chemical treatment of animal or vegetable products

(2)       Urea, whether or not in aqueous solution

(3)       Ammonium sulphate

(4)       Other Fertilizers

(5)       Ammonium nitrate, whether or not in aqueous solution

(6)       Mixtures of ammonium nitrate with calcium carbonate or other inorganic non-fertilizing substances

(7)       Crude Fertilizers

(8)       Other Fertilizers

(9)       Double salts and mixtures of calcium nitrate and ammonium nitrate

(10)    Mixtures of urea and ammonium nitrate in aqueous or ammoniacal solution

(11)    Other, including mixtures not specified in the foregoing subheadings

(12)    Superphosphates

(13)    Other Fertilizers

  

 

3101.0000

 

 

 

 

 

 

3102.1000

 

3102.2100

3102.2900

3102.3000

 

3102.4000

 

 

 

3102.5010

3102.5090

3102.6000

 

 

3102.8000

 

 

 

3102.9000

 

 

3103.1000

3105.9000
24. Pesticides and their ingredients as listed below:-

(1)      Xylol (xylenes)

(2)      Beta Pinene / Agrotin 527 / Terpenic derivative

(3)      Toluene

(4)      Mixed xylene isomers

(5)      Naphthalene

(6)      Solvesso-100, 150, 200

(7)      Ingredients for pesticides

(8)      Cadusafos Technical Material

(9)      Methanol (methyl alcohol)

(10)   Propylene glycol (propane-1, 2-diol)

(11)   Adhesives Polyvinyl Acetate- Polyvinyl Alcohol

(12)   Ingredients for pesticides

(13)   Other Ingredients for pesticides

(14)   Solvenon MP / 1-Methoxy 2-Propanol- Methyglycol Acetate

(15)   Methanal (formaldehyde)

 Respective headings.

 

2707.3000

2902.1990

 

2902.3000

2902.4400

2902.9010

2902.9090

2903.3040

2903.6900

 

2905.1100

2905.3200

 

2905.4900

 

2906.2910

2906.2990

 

2906.4910

 

 

2912.1100
25. CNG kits, cylinders and valves for CNG kits If supplied for automotive vehicles.
26. Raw and pickled hides and skins; wet blue hides and skins; finished leather; and accessories, components and trimmings for leather manufacturers. If imported for the manufacture of goods meant wholly for export provided that conditions, procedures and restrictions laid down in rules 264 to 278 of the Customs Rules, 2001 are duly fulfilled and complied with.
27. Machinery, equipments and materials either for exclusive use within the limits of Export Processing Zone or for making exports there from; and goods imported for warehousing purpose in Export Processing Zone. If imported by investors of Export Processing Zones subject to the condition that the procedures, limitations and restrictions as are applicable on such goods under the Customs Act, 1969 (IV of 1969) and rules made there under shall mutatis mutandis, apply.
28. Ships of gross tonnage of less than 15 LDT and all floating crafts including tugs, dredgers, survey vessels and other specialized crafts purchased or bare-boat chartered by a Pakistan entity and flying the Pakistan flag except the ships or crafts which are acquired for demolition purposes or are designed or adapted for use for recreation or pleasure purposes. Import and supply thereof up to the year 2020 subject to the condition that the said ships or crafts are used only for the purpose for which they were procured and in case such ships or crafts are used for demolition purpose within a period of five years of their acquisition, sale tax applicable to such ships purchased for demolition purpose shall be chargeable.
29. The substances registered as drugs under the Drugs Act, 1976 (XXXI of 1976) and medicaments as are classifiable under Chapter 30 of the First Schedule to the Customs Act, 1969 (IV of 1969) except life saving drugs as notified by the Board. Import and supplies thereof.

 
30. Fresh, liquid and dried milk with or without addition of sugar or any other sweetening matter Import and supplies thereof.

 
31. Oilseeds meant for sowing. Import thereof subject to the condition that Plant Protection Department of Ministry of Food, Agriculture and Livestock certifies that the imported seeds are fungicide and insecticide treated and are meant for sowing.
32. Raw materials for the basic manufacture of pharmaceutical active ingredients and for manufacture of pharmaceutical products.

 

 Import and supplies thereof provided that where such raw materials are imported then only those raw materials shall be entitled to exemption under this notification which are liable to customs duty not exceeding ten per cent ad- valorem, either under the First Schedule to the Customs Act, 1969 (IV of 1969) or under a notification issued under section 19 thereof.
33. Commercial catalogues, falling under PCT Heading 4911.1000. Import and supplies thereof.

 
34. Iodized salt bearing brand names and trademarks whether or not sold in retail packing. Import and supplies thereof.

 
35. Instruments for Film Production Import by a member of (PFPA). (SRO 172(I)/2006

Table 2

(Local Supplies only)

 

Serial No Description Heading Nos. of the First Schedule to the Customs Act, 1969 (IV of 1969)
(1) (2) (3)
1. Supply of locally produced crude vegetable oil obtained from the locally produced seeds, except cooking oil, without having undergone any process except the process of washing. Respective headings.
2. Supply of fixed assets against which input tax adjustment is not available under a notification issued in terms of clause (b) of sub-section (1) of section 8 of the Sales Tax Act, 1990. Respective headings.
3. Breads prepared in tandoors and bakeries, vermicillies, nans, chapattis, sheer mal, bun, rusk. Respective headings.
4. Foodstuff cooked or prepared in-house and served in messes run on the basis of mutuality and industrial canteens for workers. Respective headings.
5. Foodstuff and other eatables prepared in the flight kitchens and supplied for consumption on-board in local flights. Respective headings.

 

 

Table 3

(Zero-Rating)

 

Serial No Description Heading Nos. of the First Schedule to the Customs Act, 1969 (IV of 1969)
(1) (2) (3)
1. Leather and articles thereof including artificial leather footwear 41.01 to 41.15, 64.03, 64.04, 6405.1000, 6405.2000 and other respective headings
2. Textile and articles thereof Chapter 50 to Chapter 63 and other respective headings

Carpets 57.01 to 57.05
3. Carpets 57.01 to 57.05
4. Sports goods 9504.2000, 95.06 and other respective headings
5. Surgical goods Respective headings
6. Maize (corn) starch 1108.1200
7. Chemiclas and dyes as listed below:-

(1)      Mucilages and thickeners, whether or not modified, derived from locust beans, locust bean seeds or guar seeds

(2)      Rattans

(3)      Emery powder/grains

(4)      Magnesium oxide

(5)      Coning oil

(6)      Spin Finish Oil

(7)      Silicon dioxide

(8)      Titanium dioxide

(9)      Antimony oxide

(10)   Sodium bromate

(11)    Sodium sulphide and sodium hydrogen sulphide

(12)   Sodium dithionite

(13)   Sodium sulphite and sodium hydrosulphide

(14)   Disodium sulphate

(15)   Phosphinates (hypophosphites) and phosphonates(phosphates)

(16)   Sodium dichromate

(17)   Hydrogen per oxide

(18)   p-Xylene

(19)   Trichloroethylene

(20)   Ethylene Glycol (MEG)

(21)   4-chloro 3-methyl phenol and chloro hydro quinine

(22)   Di-ethylene glycol

(23)   Ethyl glycol

(24)   Tri-ethylene Glycol

(25)   Glutar aldehyde

(26)   Formic acid

(27)   Sodium formate

(28)   Acetic acid

(29)   Sodium acetate

(30)   Cobalt acetate

(31)   Acrylic acid and its salts

(32)   Esters of Methacrylic acid

(33)   Oxalic acid

(34)   Adipic acid, its salts and esters

(35)   Maleic Acid

(36)   Pure terephthalic acid (PTA)

(37)   Tartaric acid

(38)   GGluconic acid and its salts

(39)   Glycolic acid and their esters

(40)   Other phosphoric esters and their salts

(41)   Dyes intermediates

 

 

 

 

 

 

(42)   DMF (Dimethyl Formamide)

(43)   Acrylonitrile

(44)   Other organic derivatives of hydrazine or of hydroxylamine

(45)   Tanning extracts of vegetable origin; tannins and their salts, ethers, esters & other derivatives

(46)   Synthetic organic tanning substances, inorganic tanning substances, tanning perpetrations, whether or not containing natural tanning substances; enzymatic preparations for pretanning

(47)   Disperse dyes and preparations based thereon

(48)   Acid dyes & preparation based thereon

(49)   Basic dyes and preparations based thereon

(50)   Direct dyes and perpetrations based thereon

(51)   Indigo Blue

(52)   Vat dyes and preparations bases thereon

(53)   Reactive dyes and perpetrations based thereon

(54)   Pigments and perpetrations based thereon

(55)   Dyes, sulphur

(56)   Dyes, synthetic

(57)   Synthetic organic products of a kind used as fluorescent brightening agents

(58)   other synthetic organic colouring matter

(59)   Pigments and preparations based on titanium dioxide

(60)   Other colouring matter and other preparations

(61)   Granules, flakes, powder of glass (others)

(62)   Prepared water pigments of a kind used for finishing leather

(63)   Anionic surface active agents

(64)    Anionic surface active agents

(65)   Cationic surface active agents

(66)   Non-ionic surface active agents

(67)   Surface active preparations and cleaning preparations excluding detergents

(68)   Preparations for the treatment of textile material, leather, fur skins or other material

(69)   Spin finish Oil

(70)   Artificial waxes and prepared waxes

(71)   Other artificial waxes

(72)   Electro polishing chemicals

(73)   Other glues (printing gum)

(74)   Shoe adhesives

(75)   Hot melt adhesive

(76)   Enzymes

(77)   Photographic film, with silver halide emulsion (for textile use)

(78)   Sensitizing emulsions (for textile use)

(79)   Lignin sulphonates

(80)   Gum rosin

(81)   Fungicides for leather industry

(82)   Preparation of a kind used in textile or like industry

(83)   Preparation of a kind used in leather or like industries

(84)   Compound plasticizers for rubber or plastics

(85)   Antimony triacetate

(86)   Palladium catalyst

(87)   Electrolyte salt

(88)   Polymers of vinyl acetate (in aqueous dispersion)

(89)   Vinyl acetate copolymers: in aqueous dispersion

(90)   Polymers of vinyl alcohol

(91)   Other vinyl polymers

(92)   Other acrylic polymers

(93)   Acrylic polymers in primary forms

(94)   Polyethylene terephthalate-Yarn grade, and its waste

(95)   Nylon Chips (PA6)

(96)   Polyurethanes

(97)   Silicones in primary form

(98)   Cellulose nitrates nonplasticised

(99)   Other cellulose nitrates

(100)   Carboxymethyl cellulose and its salts

(101)   Alginic acids, its salts and esters

(102)   Nylon tubes

(103)   Synthetic leather grip

(104)   Technical specialized natural rubber

(105)   Synthetic rubber SBR 1502 latex

(106)   Butadiene rubber

(107)   Vulcanized rubber thread and cord

(108)   Leather shearing-finish leather with wool

(109)   Articles of apparel and clothing accessories of fur skin

(110)   Artificial fur and articles thereof

(111)   English willow cleft (wood)

(112)   Cork Granules

(113)   Cork sheet

(114)   Satin Finishing Wheels

(115)   Carbon Fiber

(116)   Glass fiber sleeves

(117)   Shoe tacks

(118)   Forging of surgical and dental instruments

(119)   Nickel not alloyed

(120)   Nickel rotary printing screens

(121)   Hooks for footwear

(122)   Eyes and eyelets for footwear

(123)   Tubular or bifurcated rivets

(124)   Strings

(125)   Bladders and covers of inflatable balls

(126)   Press-fasteners, snap fasteners and press studs

(127)   Buttons

(128)   Slide fasteners fitted with chain scoops of base metal

  

 

1302.3210, 1302.3290,

1302.3900

 

 

 

1401.2000

2513.2010

2519.9010

2710.1991

2710.1998

2811.2200

2823.0010

2825.8000

2829.1100

2830.1010, 2830.1090

 

2831.1010

2832.1010, 2832.1090

 

2833.1100

2835.1000

 

 

2841.3000

2847.0000

2902.4300

2903.2200

2905.3100

2908.1910

 

2909.4100

2909.4490

2909.4990

2912.1900

2915.1100

2915.1210

2915.2100

2915.2930

2915.2940

2916.1100

2916.1400

2917.1110

2917.1200

 

2917.1900

2917.3610

2918.1200

2918.1600

2918.1800

2919.9090

 

2921.0000

2922.0000

2923.0000

2924.0000

2927.0000

2933.0000

2934.0000

2924.1990

2926.1000

2928.0090

 

 

3201.1000

3201.2000

3201.9020

3201.9090

3202.1000

3202.9010

3202.9090

 

 

 

 

3204.1100

 

3204.1200

 

3204.1300

 

3204.1400

 

3204.1510

3204.1590

 

3204.1600

 

3204.1700

 

3204.1910

3204.1990

3204.2000

 

 

3204.9000

 

3206.1900

 

3206.4910

 

3207.4090

 

3210.0020

 

 

3402.1110

 

3402.1190

 

3402.1210, 3402.1220,

3402.1290

3402.1300

 

3402.9000

 

 

3403.1110, 3403.1120

3403.1990, 3403.9110

3403.9190

 

3403.9131

3404.9010

 

3404.9090

3405.9000

3505.2090

3506.9110

3506.9990

3507.9000

3702.3900

 

 

3707.1000

 

3804.0000

3806.1010

3808.9200

 

3809.9100

 

3809.9300

 

3812.2000

 

3815.1910

3815.9000

3824.9060

3905.1200

 

3905.2100

 

3905.3000

3905.9990

3906.9000

3906.9080

 

3907.6010

 

3908.9000

3909.5000

3910.0000

3912.2010

 

3912.2090

3912.3100

 

3913.1000

 

3917.3910

3926.9099

4001.2200

 

4002.1900

 

4002.2000

4007.0010

 

4302.1910

 

4303.9000

 

 

4304.0000

 

4404.1010

4501.9000

4504.1010

6804.2100

6815.1000

7019.3200

7317.0020

7326.1920

 

7502.1000

7508.9010

 

8308.1010

8308.1020

 

8308.2000

8308.9090

9506.9919

 

9606.1000

 

9606.2920

9607.1100, 9607.1900
8. Artificial leather 3921.1300
9. Natural rubber latex 4001.1000
10. Rubber latex 4002.1100
11. Thermo-plastic rubber (T.P.R.) 4002.9900
12. Buttons of plastics not covered with textile material 9606.2100
13. Buttons of base metal not covered with textile material 9606.2200
14. Studs 9606.2910
15. Oil cake and other solid residues, whether or not ground or in the form of pellets (PCT Heading 2306.1000) Supplies thereof.
16. Cream (PCT Heading 04.01 and 04.02) Import and supplies thereof.
17. Yogurt (PCT Heading 0403.1000) Import and supplies thereof.
18. Whey (PCT Heading 04.04) Import and supplies thereof.
19. Butter (PCT Heading 0405.1000) Import and supplies thereof.
20. Desi ghee (PCT Heading 0405.9000) Import and supplies thereof.
21. Cheese whether processed or not either grated or powdered (PCT Heading 04.06) Import and supplies thereof.
22. Frozen, prepared or preserved sausages and similar products of poultry meat or meat offal (PCT Heading 1601.0000) Import and supplies thereof.
23. Preparations for infant use, put up for retail sale (PCT Heading 1901.1000) Import and supplies thereof.
24. Fat filled milk (PCT Heading 1901.9090) Import and supplies thereof.
25. Soyabean meal (PCT Heading 2304.0000) Import and supplies thereof.
26. Petroleum crude oil (PCT Heading 2709.0000) Import and supplies thereof.
27. Colours in sets (Poster colours) (PCT Heading 3213.1000) Import and supplies thereof.
28. Writing, drawing and marking inks (PCT Headings 3215.9010 and 3215.9090) Import and supplies thereof.
29. Erasers (PCT Headings 4016.9210 and 4016.9290) Import and supplies thereof.
30. Exercise books (PCT Heading 4820.2000) Import and supplies thereof.
31. Pencil sharpeners (PCT Heading 8214.1000) Import and supplies thereof.
32. Pens and ball pens (PCT Heading 96.08) Import and supplies thereof.
33. Pencils including colour pencils (PCT Heading 96.09) Import and supplies thereof.
34. Other drawing, marking out or mathematical calculating instruments (geometry box) (PCT Heading 9017.2000) Import and supplies thereof.
35. Remeltable scrap (PCT Heading 72.04) Import and supplies thereof.
36. Sewing machines of the household type (PCT Headings 8452.1010 and 8452.1090) Import and supplies thereof.
37. Trucks and dumpers with g.v.w exceeding 5 tonnes (PCT Heading 87.04) Import and supplies thereof.
38. Bicycles (PCT Heading 87.12) Import and supplies thereof.
39. Trailers and semi-trailers for the transport of goods having specifications duly approved by the Engineering Development Board (PCT Heading 87.16) Import and supplies thereof.
40. Road tractors for semi-trailers, prime movers and road tractors for trailers whether in CBU condition or in kit form (PCT Headings 8701.2010, 8701.2020, 8701.2030, 8701.2090, 8710.9030, 8701.9040, 8701.9050 and 8701.9060) Import and supplies thereof.
41. Purpose built taxis, whether in CBU or CKD condition (PCT Headings 8703.3226 and 8703.3227) which are built on girder chassis and having following features, namely:-

(i)        Attack resistance central division along with payment tray;

(ii)       Wheelchair compartment with folding ramp; and

(iii)      Taximeter and two-way radio system.

 Import and supplies thereof.
42. Vessels for breaking up (PCT Heading 89.08) Import and supplies thereof.
43. Compost (non-chemical fertilizer) If produced and supplied locally.

 

Main Features of the Reformed General Sales Tax Bill, 2010

December 5, 2010

gstechlive Reformed General Sales Tax , , , , Leave a comment

1-                  The same system of adjustment of input tax is proposed in R-GST Bill, although there are certain differences in proposed design/implementation vis-à-vis the existing sales tax. In proposed system most of the powers are vested with the Board which will cause delays in resolving day to day problems of tax-payers.

2-                  The language of the law has been entirely changed as compared to the Sales Tax Act, 1990. The language of the proposed Bill is apparently influenced by the Australian Goods and Services Tax.

3-                  Third Schedule of the present Sales Tax Act, 1990 is proposed to be abolished. Hence all items will be taxable on ex-factory price basis.

4-                  All special schemes are proposed to be abolished. Similarly, all rates other than the standard rate of 15% are also proposed to be abolished. However, with the reduction of rate from 17% to 15%, special excise duty rate is proposed to be increased to 2% from the existing 1%.

5-                  Previously, value always excluded the amount of tax. Now it is proposed to apply tax fraction formula to arrive at the value. The formula is as under: –

___R__

100 + R

Explanation: R  in this formula is rate of tax.

The formula is difficult to understand for common taxpayers and will cause confusion.

6-                  The proposed legislation deals not only with goods but also with services rendered in Islamabad Capital Territory.

7-                  Since tax on services is a provincial subject, provinces are expected to introduce their respective General Sales Tax Acts for levy of sales tax on services. Provinces are also expected to allow the FBR to administer and collect the tax on such services as are decided by them with a view to ensure that the provincial sales tax law and the federal sales tax operate together as an integrated tax on goods and services. A special provision for this purpose has been added in the Bill (section 8).

8-                  Two new concepts of “progressive and periodic supply” and “ancillary or incidental supplies” have been introduced to cater for periodic supply and supplies incidental to goods.

9-                  Previously only fraudulent refunds and falsification of records was covered under tax fraud. Now tax evasion is also proposed to be covered by the definition of tax fraud. There is likelihood that the same will be used to harass/blackmail the tax-payers.

10-              The department will have very vast powers to disregard and to re-evaluate value of supply of a tax-payer. Previously  consideration received by a supplier was to be accepted as a value of supply and in case of any difference of opinion a procedure was laid down to re-evaluate the same by associating the concerned association/trade body. Now it is proposed that tax authorities will determine the same at their own and as evasion is included in tax fraud, the tax-payer may be charged with the same.

11-              Now recovery can also be made from the associated person which also include relatives of the taxpayer.

12-              List of exempt goods has been reduced to minimum and only very limited items such as wheat, wheat flour, vegetables, meat, diapers for adults, ambulances, fire fighting trucks, artificial human body parts are included in the First Schedule. Roti, bread, nan, sheermal, milk, animal feed, tractors, pesticides, fertilizers, etc. will now be taxed.

13-              Local zero-rating of textile, surgical goods, foot wear, sports goods, leather and leather products and carpets is proposed to be abolished.

14-              Contrary to the previous law, exemptions and zero-rating will be provided only through an Act of parliament/Ordinance by the President. These can’t be provided through notifications.

15-              Now tax-payers will again required to pay GST on advances received by them.

16-              A new concept of increasing and decreasing adjustment is introduced. Now tax-payer can make adjustment against bad debts for a supply against which payment is not received or amount has been overdue for more than six months. Increasing adjustment shall be made for (i) post-supply adjustment vide debit or credit note, (ii) against bad debits, (iii) for goods applied to private purpose, (iv) in case of cancellation of registration, (v) for amount of tax withheld by the buyer, (vi) in case of change in the rate of tax, and (vii) against a penalty, fine, fee, default surcharge or             any other sum payable by the tax-payer. Decreasing adjustment shall be made for the (i) tax already paid against advances, (ii) post-supply adjustment vide debit or credit note, (iii) for bad debits, and (iv) against a carry forward amount.

17-              Input tax is proposed to be disallowed only on passenger vehicles and expenses on entertainment. This is now as per standard VAT. Previously input was disallowed on all type of vehicles such as pick-ups, trucks, buses etc.

18-              Board may, if so desired, collect advance GST on import stage maximum up to 1/4th of the rate of GST for prospective value addition. Previously importers other than manufacturers were paying 2% value addition tax on import stage, which comes to 1/8th of the rate of GST.

19-              Refund will be allowed on the basis of purchases if exports constitute more than 50% of supplies. However, in case exports are less than 50% of total supplies, refund procedure will be notified by the Board. The procedure for such exporters is therefore not clear at the movement.

20-              No procedure has been envisaged for refund to investors who import machinery for installation / commissioning but come into production at the later date. Refund for such investors will be necessitated due to proposed withdrawal of the exemption on machinery.

21-              Threshold for registration is proposed to be enhanced from Rs.5 million to Rs.7.5 million per annum.

22-              Tax-payer will be required to issue sales receipt instead of sales tax invoice to an unregistered person. Tax-payer is bound to provide CNIC number in this case; however he must indicate that tax is included in the amount. However it is not clear why this distinction between registered and un-registered buyers has been made.

23-              Now a person can file amended return after obtaining approval from the Board within three years from the actual return. Commissioner will not be empowered to allow filing of amended return.

24-              Minor corrections in the return are also required to be made with the permission of the Board subject to the condition that default surcharge in this case should not exceed Rs.1,000/-. Tax-payers will face hardship if they are forced to approach Board for redressal of such kind of petty issues.

25-              An Assistant Commissioner or an officer of higher rank may arrest a person with approval of the Board on suspicion of involvement in tax fraud.

26-              The commissioner may compound, at any time, any offence including tax fraud on payment of tax due along with default surcharge and penalty. Trial of cases of tax fraud shall be conducted by a Special Judge. Compounding of tax fraud  shall be undertaken with the permission of the Court of Special Judge if case is before him

27-              The penalties are prescribed in the third schedule and the same can not be foregone completely by any adjudicating officer, Tribunal or Court if it is proved that the offence was committed.

What is Wrong with R-GST (Reformed General Sales Tax)

November 24, 2010

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Discussion on Reformed General Sales Tax is raging all over the place. It is therefore, important to highlight as to what is wrong with the proposed       R-GST. Here are some of the drawbacks:-

●    The big question not addressed is: should a new law be introduced or the existing Sales Tax Act be suitably amended. The existing law is already in VAT mode. The government has gone for a new law, mainly inspired from the Australian Goods and Services Act. As a result, new terminology, jargon and diction has been adopted which is confusing for a common taxpayer. Opposition to the Bill, to a large extent, is due to this factor. There was no need to fish in unknown waters. The plunge is, therefore, unnecessary and a result of bad planning and ill-advice.

●    The proposed law gives wide discretionary powers to the Board and the sales tax officers. If past is any guide, these discretionary powers are likely to be massively abused by government functionaries.

●    Only one legislation is being introduced for taxing the goods on all Pakistan basis and services in Islamabad Capital Territory. This has aggravated the complexity and confusion in the law.

●    On the one hand, rate of sales tax is being reduced from 17% to 15%; on the other special excise duty is being increased from 1% to 2%. Apparently there is no reason for this. Special excise duty is highly cascading and distortionary and will further complicate the system. Why not impose only sales tax @ 17% and no special excise duty. Apparently, saner advice is either not being given or not being heeded to.

●     Compliance cost for small size manufacturers, wholesalers and retailers above the exemption threshold of 7.5 million is likely to be very high which is one of the major reasons for its opposition by SMEs. Nothing has been done to reduce the compliance cost.

●     Almost all exemptions on goods are being withdrawn. Even items like milk, yogurt, butter, bread are proposed to be taxed. The current inflation will certainly sky rocket, specially for lower middle class / middle class consumers. Most VAT countries studiously avoid taxing basic household kitchen items.

●    R-GST, like all VATs, will entail substantial refunds on exports. No suitable refund mechanism is in place nor is in sight. The exporters are likely to suffer in a big way due to held up refund claims. Their money will remain stuck with the government, increasing the cost of doing business.

●    Although some changes in tax administration have been made during the last two years during which time an Inland Revenue Service has been created; however, this tax administration is still in complete disarray. The present tax administration cannot handle the heat.

●    Introduction of R-GST will certainly improve documentation of economy. The businesses are afraid of this documentation. Their fear has a historical background emanating from their experience with the tax administration. These fears are largely valid.

●    It is a known fact that corruption and rent seeking has substantially increased during the tax reform period in spite of tall claims to the contrary. Ask any taxpayer coming in contact with the department.

●    The present Inland Revenue Tax Administration is not sufficiently trained even to run the present sales tax regime, what to talk of the expanded R-GST. It will result in extreme confusion, mismanagement and harassment of tax payers. Backlash is likely to be very serious.

●    The proposed law is no longer a benign tax. It is without a human face. Most of the actions have been left at the whims of the Board and the tax officials. A case in point is the definition of ‘tax fraud’, ‘time of supply’ and the provisions relating to suspension of registrations etc.

●    The issue of fake/flying invoices has not been taken care of in the draft. At the same time rights of bona fide tax payers purchasing goods from suppliers, whose registration is subsequently suspended due to any wrong doing, have not been protected. Both these issues needed serious consideration, keeping in view the experience of the last more than one decade. Apparently this was not done as draft has been blindly copied from Australian GST. In Australia, fake/flying invoices is not a huge issue/phenomenon.

●    The most important stakeholder i.e taxpayers and their trade bodies have not been consulted on the proposed bill who have been completely left out. If at all R-GST is introduced, very serious resistance will be offered by them. More trouble is therefore, in store for the government.

●    Withdrawal of zero rating facility on fire export oriented sectors will have serious repercussions on the economy & exports. Both are likely to suffer an immediate upheaval.

●    Some of the provisions of the Bill are draconian. Recoveries can be made from relatives of a tax payer. Any evasion of tax/undue refund can be stretched to level charges of tax fraud against any tax payer. Extortion will become rampant.

●     There are many inconsistencies in various provisions of the Act, which will be highlighted once Bill is adopted and put to judicial scrutiny. There was no justification for changing those provisions of Sales Tax Act of 1990 which had withstood judicial scrutiny.

●    The most important issue is that of services which are to be taxed by the provinces. Most of issues relating to taxation of services by provinces are unresolved to this date. More confusion will ensue with introduction of provincial Sales Tax on services. It is an established fact that taxation of intangibles is more difficult and cumbersome. Can this tax administration handle it? Apparently not.

Keeping in view the above, I am of the view that proposed       R-GST is likely to be another failed experience. I believe that either it will not be introduced in its present form or if at all introduced, under directions from the donors, Government will be forced to withdraw it or water it down in few months. If this does not happen, my dear taxpayers, tighten your belts and be ready for a rough ride!