KARACHI: All Pakistan Textile Mills Association (APTMA) has demanded the Federal Board of Revenue (FBR) to streamline refunds system and also ensure timely adjustment of inputs for textile sector to resolve liquidity issue of the textile sector.
In its proposals for budget 2018-19, the APTMA said currently FBR capture sale tax returns subsequent to verifying sales and purchases. This is prudent step.
However, simultaneously the exporters are asked to submit the refund claims on CD (RCPS). Such mechanism might have served some purpose, when returns were accepted without any verification.
It may also be relevant to point out that the exporters have the facility to file claim electronically in the Expeditious Refund System (ERS). There is lot of time lag between issuance of RPOs and payment of refunds
The APTMA suggested that now all date of imports, exports, purchases and consumption are part of return filed electronically. According all claims can conveniently be processed through ERS.
At times ERS rejects certain claims which are sent to RTOs/LTUs to process manually. Such manual processing are fraught with acts of delays and impropriety. In order to stream-line ERS should roll back claims to claimant with objection and asked then to resubmit electronically after addressing /removing objections.
Highlighting input tax on packing material, the APTMA said the zero-rating of local supplies of the five export sectors was re-introduced in 2016 by making amendment in SRO 1125(I)/2011.
However, through SRO 491(i)/2016 dated 30.01.2016 condition (x) of the SRO was substituted providing that no input tax credit or refund shall be admissible on packing material of all sorts.
The textile body suggested that the proviso in condition (x) regarding disallowance of input tax on packing material should be deleted.
The packing material of value added textile goods is a commercial requirement of business and reasonable expenses have to be incurred on the packing material. The disallowance was made only in the context that the reduced rate local supplies was being zero-rated once again and concession was intended to be compensated somewhat through this disallowance for which there is no legal rationale.
The APTMA suggested integration of FBR and provincial revenue authorities. It said subsequent to 18th amendment in constitution of Pakistan provinces are collecting tax on services. Services and goods are generally integral part of any finished product. Now there is no procedure whereby FBR refund or allow tax adjustment of taxes paid to provinces and same is the case with provincial tax setup.
FBR, PRA and SRB should integrate data so that due refund / adjustment is not delayed.
Regarding supplies of yarn outside the textile sector, it said as per Sr.No.1(iv) of Table II of SRO 1125(I)/2011, supply of goods usable as industrial input including fabric to persons outside the five sectors is chargeable to tax at standard rate of 17 percent instead of zero-rating of supplies provided within the five sectors.
It is suggested that either the Sr. No.1(iv) should be deleted or exclusion is provided to the yarn.
Since yarn has no use whatsoever outside the textile sector therefore its exclusion by appropriate amendment in SRO 1125(I)/2011 would safeguard from any such frivolous allegation and proceedings in the future.
Yarn is made for sizing, weaving, Knitting hence technically there is no demand other than the Sizing, weaving, Knitting industry.
Based on registration profile of the buyer unwarranted show cause notices are issued inspite of a clarification by the FBR that yarn has no market outside the sector.
The APTMA said in a number of meetings, the revenue body has agreed that exporter / buyer is not responsible the supplier is suspended / black listed subsequent to making supplies. However, no steps has been taken to rectify the relevant provisions of Sale Tax Act. It has now become more relevant that exporters are allowed adjustments / refund once the supplies are verified.
No liability of buyer arises where suppliers were black listed but were active at the time of making supplies. To give legal effect, necessary enabling amendment may also be made in section 21 of Sales Tax Act 1990.
As per principle laid down by the courts, the supplies by the registered person prior to its blacklisting are to be treated as valid. Hence the court verdict be given legal cover to forestall litigation and wastage of time and energy of all concerned.
Highlighting another issue of in put sales tax on above items are restricted by virtue of clauses 1 (h) & (i) of Section 8 introduced through Finance Act 2014 and earlier through SRO 490(I)/2004. It suggested clause 1(h) & (i) of section 8 should be deleted. Further, Clauses (a), (e), (f), (g) and (h) of SRO 490(i)/2004 should also be deleted.
Such exclusions negate the basic principles of VAT which provides for input credit on very thing used in furtherance of supply.
The APTMA highlighted the issue that on number of occasion registered person’s funds are stuck up with the sales tax department in the form of sales tax refund and at the same time he is required to pay income tax at the time of assessment of his income tax liability. Resultantly, the taxpayer has to bear the burden of making payment of income tax liability whereas his own money is lying idly with the sales tax department.
Board vide letter C. No. 3(70)STM/99 dated: 20th December 1999 has already devised a procedure of inter-tax refund/ adjustment; but officers posted both at sales tax and income tax divisions are not following the above said procedure for the reason best known to them. It is, therefore, suggested that tax payers should be asked to make payment after giving him credit of receivables under any Heads.
Income Tax and Sales Tax function have been combined and assigned to the same officer and it is very easily ascertainable by him that there is refunds under one tax and demand under the other tax. Both the relevant tax laws allow such adjustment but the procedure by the officer and the treasury (PRAL) is not well-defined. The procedure needs to be well-defined and notified by the FBR.
The APTMA said advance tax u/s 147 recovered from sales tax refunds through RPOs are not being converted into CPRs, even after the window for CPRs u/s 147 for the year is closed, and this way funds are blocked for years.
It is demanded that this problem should be resolved on priority.
Deficiencies in the design of CREST are causing great hardship for the concerned taxpayers especially that of textile sector. It is the department who has failed to update the “Tariff Information” in the STRNs of the taxpayers and the result is that even such units which are known to exist by in textile sector by dozens of government agencies are not regarded a textile unit by the CREST and, resultantly, its associates are put to question regarding the supplies involving such units.
CREST should be for data matching purpose and registered person’s liability to be limited to own affairs instead of it being questioned for customer affairs esp. pertaining to various customer discrepancies as per CREST manual like Non-Filing of return, Sales not shown etc.