Consultants advise CBR to remove third schedule of Sales Tax Act

ISLAMABAD (January 06 2003) : The Central Board of Revenue (CBR) tax consultants, Maxwell Stamps, have strongly recommended to abolish the Third Schedule of the Sales Tax Act, 1990, bringing fruit/vegetable juices, ice cream, aerated waters/beverages, syrups and squashes and cigarettes in the normal GST regime to expand retailers/wholesalers' registration network.

The consultants from UK have handed over sales tax reforms strategy document to the tax authorities for compliance.

Pakistan's tax practitioners have strongly contested the summary pertaining to the removal of Third Schedule of the Sales Tax Act and said that any move to abolish this schedule would have negative impact on the revenue and would encourage tax evasion.

They argued that after the removal of Third Schedule the manufacturers would directly deposit 18 percent GST on supplies made to the unregistered persons.

The chain of taxpayers, starting from manufacturers to retailers including manufacturer, agency holder, distributor, wholesaler and retailers, would shrink only to manufacturer and unregistered buyer.

They said that the summary is against the spirit of collection of sales tax in Pakistan.

This aspect would contract the sales tax net, if implemented.

Contrary to this, Edward Mouat, a consultant from the UK, has recommended to the CBR that the sales tax system is largely in conformity with the general principles of a value-added tax regime.

The remaining incongruity is the existence of the Third Schedule of the Sales Tax Act.

This lists six commodities of general consumption on which sales tax has to be accounted for on the basis of the retail price.

The origin of this provision is the largely superseded excise regime.

The system of the production of the items listed in the Third Schedule eg fruit juice, ice cream and cigarettes is such that an audit trail from manufacture through distribution can be readily established.

Moreover, inclusion of these commodities in the normal sales tax system is likely to encourage wholesalers and even larger retailers to become registered for sales tax, even if they are not registered at present.

They will then be able to obtain the benefit of input tax deduction on their purchases of these products.

Another benefit of removal of the Third Schedule is that it would make computer checking of sales tax returns more reliable.

At the moment there may be inconsistencies between the value and tax figures on a return from a taxpayer dealing in these products.

For these reasons it is proposed that the Third Schedule of the Sales Tax Act be removed, consultants Maxwell Stamps added.

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