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Use of section 40-B of Sales Tax Act conditional: CBR

ISLAMABAD (October 08 2003): Putting aside severe resistance by industrial sectors on section 40-B of Sales Tax Act, 1990, the Central Board of Revenue (CBR) is bent upon deputing sales tax officers at manufacturing premises as a 'conditional' action to arrest tax fraud.

Various associations, like Pakistan Electric Fan Manufacturers Associations (Pefma), Gujrat, have strongly contested that section 40-B has enhanced discretionary powers of sales tax officers to blackmail owners of the units.

They demanded immediate withdrawal of this section from Sales Tax Act, 1990.

Rejecting the viewpoint of business community, the CBR has issued a new clarification to associations on section 40-B, which says that it has been misconceived by industrial units and it could only be exercised conditionally. Thus, it would leave no room for its misuse, the CBR added.

Moreover, its insertion was made to check the under-reporting of turnover and evasion of sales tax by manufacturers.

It is to prevent the abuse of facility of self-assessment or tax fraud that the Collectors of Sales Tax have been empowered to post officer of sales tax for physical monitoring of production/supplies of goods, for a limited period only, in selected cases wherein there is sufficient reason to believe that prima facia a registered person is involved in tax fraud/evasion, the clarification added.

The tax practitioners have termed the clarification as a joke with the business community on following grounds:

Firstly, the CBR has used a sketchy statement of “sufficient reasons to believe”. It has not been clarified what the basis of this action is–CBR data, informer reports or collectorates' report.

Secondly, how the CBR would judge that a specific unit is suspected of involvement in tax fraud.

What would be the source of credible information and how CBR would monitor its own official in case he harasses or compromises with the suspected unit.

Thirdly, according to the consultants, it is simply a tool of blackmailing and harassment used by tax officers because of absence of any concrete mechanism/procedure.

Fourthly, there is no need of section 40-B in the presence of other harsh sections like 38 of the Sales Tax Act, 1990.

They added that section 40-B is against the spirit of natural justice as on the one hand the government collects revenue from businessmen and, on the other, the CBR deputes tax officers on suspicion of tax evasion, which also damages the credibility of the business concerns.

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