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Minimum tax liability of non-filers to be fixed

ISLAMABAD (October 23 2003): To effectively deal with registered persons not filing sales tax returns, the Central Board of Revenue (CBR) has drafted criteria for determining minimum tax liability of non-filers and short-filers.

Sources told Business Recorder here on Wednesday that CBR has incorporated section 11(5) in Finance Act 2003 permitting the tax officials to work out minimum tax liability of those registered persons who fail to file sales tax returns for the year under review.

In this regard, the authorities have hammered out new procedure in consultation with the tax collectors. The basic criteria would be notified within two weeks of the issuance of draft, which would ensure transparency.

At the collectors' conference in Lahore, procedure to work out minimum tax liability of non-filers was devised.

The CBR has divided business community into two categories for determination of minimum tax liability. First category will cover those registered persons whose complete return record is available.

Second category would cover those registered persons who have never filed sales tax returns or filed a few returns.

Under the proposed procedure, the minimum tax liability of dealers, distributors, wholesalers and retailers would be determined on the basis of their turnover during the last three working months.

Sources said that the determination criteria will be as follows: Location of business; area of business/shop/factory (details such as cost of plot as per D.C. rates; construction or amount of rent, if premises are rented; type of business (ie retail etc); item produced/supplied or service provided; number of persons employed and assessed expenditure on their salaries/allowances etc; capital employed in the business, including cost of building and machinery, and related infrastructure; amount of utility bills ie phones, electricity, gas and water; production capacity of machinery installed; average tax paid during the last three months or the tax paid by other persons engaged in identical business in similar conditions, and any other parameter suggested by the respective Association to determine the tax liability keeping in view the principle of equity and financial viability of a business.

Minimum tax liability will be subject to the following conditions: Registered person will maintain records of purchases, sales and utility bills as prescribed under the relevant provisions of law. The registered person will pay tax as per record prescribed/maintained if the same works out higher than minimum tax liability fixed for each month.

Following would be the basis for determination of minimum tax liability of registered person who has been filing returns and whose record is available on computers:

(i) The minimum tax liability should be determined on the basis of average of output tax of last three months without benefit of input adjustment.

(ii) The minimum payment made in last three months ignoring any month in which there is carry-forward.

(iii) The monthly average of the last sales assessed in income tax ie sales declared in income tax and then applying 18 percent rate of tax.

(iv) In case of continuous nil filer, the minimum tax liability should be determined on the basis of utility bills and information obtained from any other Government department.

(v) For dealers, distributors, wholesalers and retailers, the minimum tax liability should be determined on the basis of their turnover during the last three working months.

(vi) In case of a commercial exporter, it is in his interest to file the return to avail benefit of refund on zero rated supplies. Therefore, in case of a non-filer or nil filer commercial exporter, benefit of zero rate should not be allowed.

Following would be the criteria for the registered person who has never filed a return or has filed a few returns: The CBR would apply the same criteria on non-filers and work out the data of six other persons of the same business under similar conditions.

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