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CBR begins desk audit of four sectors

ISLAMABAD (July 20 2005): The Central Board of Revenue (CBR) has started desk audit of four sectors, which include commercial importers, customs house agents, retailers and steel smelters, to ascertain actual payment of sales tax.

Official sources told Business Recorder on Tuesday that CBR would carry out desk audit, without visiting the business premises of these taxpayers, on the basis of available record.

The CBR has already agreed on benchmarks for sales tax payment on the basis of value-addition by these sectors. The tax officials will see whether commercial importers, retailers, customs house agents and retailers are properly paying sales tax on the basis of value-addition or not.

They said that training of additional collectors and deputy collectors is under way for launching of sales tax internal audit, which is at present suspended. However, CBR will continue to carry out desk-audit on the basis of data available with the collectorates.

Explaining the phenomena of desk-audit for retailers, officials said that all retailers having turnover above Rs 5 million are required to pay sales tax. Initially, 10 percent value-addition was fixed for the retailers, but later, the CBR had reduced minimum value-addition for certain retail sectors ie motorcycles, 4 percent value-addition; rubber tyres 3 percent value-addition; mild steel products ie Steel Bars etc Rs 600 PMT; electronic goods of domestic use (Pakistan Origin) 3 percent; Flat Rolled Products 3 percent and sanitary wares and tiles 4 percent value-addition.

Under the desk-audit plan, the CBR will examine the value of purchases to ascertain whether these retailers are properly paying sales tax or not.

In case of steel smelters, the CBR will calculate sales tax on the basis of electricity consumption during a tax month.

As per special procedure for the payment of sales tax by the steel sector on a minimum value-addition basis agreed on between the CBR and the steel industry, the CBR has made it mandatory that all registered persons in the steel sector are required to submit a copy of their monthly electricity and gas bills every month to the respective collector of sales tax from July 1, 2005.

In 2004-05 budget, a special procedure for payment of sales tax by steel melters and steel re-rollers on a minimum value-addition had been prescribed in consultation with steel sector associations, under Chapter XII of the Special Procedure Rules, 2004. The same procedure has been reiterated in the Sales Tax Special Procedure Rules 2005, with some improvements made in consultations with the relevant trade associations. The collectors are now required to obtain a copy of the gas bill from composite steel smelting units.

The collectorates will examine the data of monthly electricity consumption to be reconciled with the declared production and tax payments as per the formula of electricity consumption to check any possible short payment of tax.

Keeping in view this procedure, the desk-audit will be conducted using electricity bills for ascertaining the actual production of steel smelters. The bills will give a clear picture about the electricity units consumed during the production process.

On the issue of commercial importers, officials said, they have to pay sales tax on supplies of imported goods, on value-addition of not less than 10 percent, provided that in case the value-addition of such commercial importer during any period in the preceding year was higher than 10 percent, he shall pay sales tax on supplies of imported goods on such higher value-addition.

The commercial importer has to issue tax invoice for every supply under section 23 of the Sales Tax Act and maintain records. He has to file sales tax return for a tax period and furnish a statement on value-addition for the collector of sales tax.

The Collector of Sales Tax has the authority to determine the sales tax liability of commercial importers on the basis of import database. For conducting desk-audit of commercial importers, the CBR will examine the 'value of imports' to see whether this sector is paying tax on the basis of value-addition.

In case of customs agents, the CBR and agents have agreed that the value of taxable services shall not be less than the minimum benchmark level per document. The documents, for which minimum value of taxable services has been laid down include GD or Goods Declaration for home consumption or into-bond filed; Ex-bond GD or Goods Declaration filed; Pakistan Goods declaration for export filed; rebate claims filed 0.25 percent of the amount of rebate claim; GD or Goods Declaration filed at airport (AFU) including baggage declaration and transit or transhipment permit.

To carry out desk-audit, the CBR will examine whether sales tax has been paid on the basis of benchmarks agreed with these agents or not.

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