KARACHI: President Karachi Chamber of Commerce & Industry (KCCI) Junaid Esmail Makda, while highlighting various Sales Tax and Income Tax anomalies unveiled in the Federal Budget 2019-20, appealed Prime Minister Imran Khan, State Minister for Revenue Hammad Azhar and Chairman FBR Shabbar Zaidi to rectify all these anomalies on top priority prior to seeking approval of the Budget from the parliament.
In a statement issued, President KCCI stressed the government must deal with all these anomalies otherwise the industry will not be able to keep its wheels spinning, that will lead to raising unemployment and poverty all over the country, besides creating a disastrous situation and a tsunami for the already ailing economy.
The Karachi Chamber has identified following anomalies in the Federal Budget:
SALES TAX ISSUES
- Definition of Cottage industry is changed – Section – 2 (5AB)
Currently Cottage industry means manufacturer with annual turnover of less than Rs. 10 million or whose annual utility bills do not exceed Rs. 0.8 million.
Now Cottage Industry would be a manufacturing concern:
(a) Which does not have an industrial gas or electricity connection,
(b) is located in a residential area;
(c) Does not have a total Labour force of more than ten workers; and
(d) Annual turnover from all supplies does not exceed Rs. 2 million.
- Section – 3 (7) “Scope of tax” – Sales Tax withholding
Currently Sales Tax withholding is applicable through SRO-660/2007 and as per its Rule – 5 various exclusions are provided for Sales Tax withholding including for goods of 3rd Schedule and for Companies being Active taxpayers.
Now separate 11th Schedule is proposed to be included in Sales Tax Act, 1990 and such exclusions are to be included in such Schedule or Rules to be prescribed.
Further, currently Companies are required to withhold 1% of value of purchase from un-registered suppliers and that become the part of cost for buyer / companies. Now this rate is proposed to be enhanced to 5% and that we increase cost of such companies purchasing from un-registered suppliers.
- Section – 7A “Levy and collection of tax on specified goods on value addition”
Currently 3% Value Added Tax (VAT) is applicable through Rule – 58A to E under SRO – 480/2007 and manufacturer importing goods for in house consumption is not charged with such 3% VAT at import stage.
Now separate 12th Schedule is proposed to be included in ST Act, 1990 and only those manufacturer that would import Raw materials and intermediary goods for industrial process which are subject to customs duty at 16% or 20% ad valorem are excluded. This means that manufacturer importing goods which are subject to Custom duty other than 16% or 20% would be required to pay 3% VAT.
- Sale to un-registered person
– Section – 8(m) “Tax Credit not allowed”
Now Sales paid on input goods attributable to supplies made to un-registered person, on pro-rata basis, nor which Sale Invoices do not bear the NIC number of the buyer.
– Section – 23 (b) “Tax Invoices”
NIC of unregistered buyer shall also be mentioned on ST Invoice otherwise input tax paid for such supply would not be allowed.
3rd schedule products shall be excluded from the requirement of mentioning NIC of un-registered buyer otherwise major input of manufacturer would be disallowed.