ISLAMABAD (November 10 2005): The Central Board of Revenue (CBR) has decided to conduct “independent assessment” of unregistered retailers of five zero-rated sectors where annual turnover could not be determined to register potential payers.
The CBR has issued instructions to all the collectors of sales tax to identify potential retailers of zero-rated sectors for levying 3 percent retail tax.
According to the CBR decision, “In cases where the income tax returns data is not helpful in determining turnover of retailers, independent assessments may be made to register retailers of specific goods.”
When this scribe contacted a sales tax official, he said that the “independent assessment” would help in ascertaining the actual sale of the retailers, which were declared zero-rated in the budget.
However, the methodology of “independent assessments” is yet not been finalised. The concerned sales tax officer was himself not clear about the concept of “independent assessment”.
A chartered accountant clarified that Section 11 of the Sales Tax Act, 1990 provides method of assessment which is to be determined after the examination of audit report, reply of audit observations, issuance of show-cause notice and adjudication by the competent authority. Section 11 is co-related with sections 25, 36, 45 of the Sales Tax Act.
This process requires a long drawn exercise of audit and examination of relevant data. Most likely the department may not have the expertise and the databank for conducting such an exercise.
In the absence of powers to make “deemed assessments”, “protective assessment” and “ex parte assessments” the Sales Tax Department could not recover a single penny through the exercise of “independent assessment”.
Sources said that the collection of 3 percent retail tax from the retailers of five sectors, which has been zero-rated in the Budget 2005-2006, posed a major challenge to the sales tax collectors. This goal could only be achieved if the retailers are informed about the benefits of registration and pay retail tax. Three percent retail tax includes 2 percent sales tax and 1 percent income tax, which is their final liability.
The CBR has decided to assign separate targets for collection of retail tax be assigned to each collectorate of sales tax on the basis of population of retailers.
They added that tax base could only be broaden by identification and subsequent registration of the potential taxpayers. The Sales Tax Department tried to co-ordinate with the Income Tax Department, particularly in case of 3 percent retail tax announced in the Budget 2005-2006.