Saturday, October 1, 2011

History of Sales Tax Act

History of Sales Tax Act
Sales tax was imposed in Canada in 1920 and is still in force with some modifications. In United States, Federal Government has never sured officially this tax as sales tax. Actually it was an assortment of commodity tax both at manufacture and retail levels and it was introduced in 1930. Great Britain introduced purchase tax in 1940. Before the partition of subcontinent, India Sales Tax was regarded under the item of 48 of the provincial legislative in the seventh schedule to the Government of India Act, 1930. Pakistan adopted General Tax Act which was earned by the provincial government in the Punjab.
Federal Government in 1948 took over the sales tax and an addition was made to the federal legislative list an item No. 54B. Pakistan General Sales Tax Act, 1948 came into force on the 1st day of April 1948, which was based on the multiple point tax system.
In 1950, a sales tax enquiry committee was appointed to examine and report on the administration, incidence, general structure and leakage of sales tax revenue. The committee made various recommendations including the adoption of the single point tax system and the collection of tax in respect of imported goods at the import stage along with customs duty.
The present Sales Tax Act was introduced in the federal legislature on the 30th day of March 1951 to give effect to the recommendations of the committee. After discussions and debates in Parliament the bill was passed by the legislature and was given consent by the time Governor General on the 20th day of April 1951.
Sales Tax could not be charged on importation and exportation of commodities but on only consumption, this was further improved by the presidential order, Taxation of Sales and Purchase Order, 1960, on the 30th day of June 1960, according to which the power to impose taxes on the sales, purchases, consumption, importation, exportation, manufacture and production of goods was conferred since 31st day of March 1948. The preamble of the Act was amended by inserting the words “importation and exportation, production, and manufacture” after the word “sale”. Sales tax when levied was fixed at 10% but increased to 12.5% from 1st July 1961 and again further increased to 15% from 1st July 1964. A surcharge of 25% of the sales tax was levied on the sales of taxable manufactured goods by the Finance Supplementary Act, 1965 which was done to meet defence requirements. However, the Defence Surcharge and Rehabilitation Tax were abolished by the Finance Ordinance, 1972. The Federal Government has the powers to enhance the general limit or general rates of sales tax or reduce such rates by a notification published in the official gazette.

Sales Tax Act 1990
By virtue of Finance Ordinance, 1990, the Sales Tax Act, 1951 has been completely substituted by a new Act known as Sales Tax (Amendment) Act, 1990. This complete change has been made in order to update the Act so that it should be able to meet country’s economy. Moreover, government has tried to simplify the rules regarding sales tax for the benefit of assessees and collection authorities. The 16 chapters of repealed act have now been replaced by 10 new chapters. The new Act became effective on 1st July 1990.
The Act prescribed a Value Added Tax (VAT) type system in which the value added component at each stage of business transaction could be taxed. The sales tax is chargeable from a registered person at import and sale of taxable manufactured goods. Tax credit or input tax is allowed when the registered person keeps proper record of claim regarding tax invoice and bill of entry. The goods meant for export were zero-rated. The tax paid on raw materials and other goods purchased in the course of business are deducted automatically while determining the tax liability. The new system is based on self-assessment/clearance procedure and payment of tax.

Salient Features of VAT Type System
1. Administrative structure changed from geographical jurisdiction to functional division.
2. Introduction of combined return-cum-payment challan form.
3. Filing of return-cum-payment challan in the bank.
4. Simplified record keeping i.e. a register for sales and a register for purchases and issuance of tax invoices.
5. No posting of sales tax officials on the business premises.
6. No authentication of documents by the Sales Tax officials.
7. No checking of taxable goods during transportation.
8. No seizure of goods during transportation or otherwise.

Extract of the Budget Highlights 2002—2003
1. Sales tax exemptions withdrawn on supplies of vegetable ghee and cooking oil.
2. Immunity from further tax granted on vegetable ghee, cooking oil and fertilizers.
3. Tax rate on imported vegetable oils increased from 15% to 20%. Similarly, tax rate on five other items (Talc, Solvent Oil (non-composite), Calcium Carbonate, Maleic Anhydride and Acrylic Tops) increased to 20%.
4. Zero-rating facility (complete exemption of sales tax) granted on the locally manufactured plant and machinery supplied to petroleum and gas sector E&P companies including OGDC, their contractors and sub-contractors.
5. Input tax adjustment allowed on electricity bills showing registration number and address of a registered person.
6. The scope of tax repayment extended to both imported and domestic inputs used in exportables.
7. The institution of Collector (Appeals) revived to hear appeals against orders passed by officers up to Deputy Collector.
8. An alternate dispute resolution system developed involving participation from private sector for settlement of disputes of taxpayers.
9. Classification of sales tax exemptions made in line with new version of H. S. Code.
10. A statutory provision created for relaxation of expired time limitations in genuine cases.
11. A system of inter-collectorate transfer of registrations evolved.
12. Legal framework developed for establishment and operation of Large Taxpayers Unit (LTU) with effect from 1st day of July 2002.
13. Federal Government authorized to allow input tax adjustment in case of determination of past tax liabilities.
14. Collectors empowered to allow adjustment instead of cash refund of un-utilized input tax in subsequent tax period.
15. Ambiguities in the definitions of “input tax”, “registered person” and “enrolled person” removed.
16. 72 new branches of National Bank of Pakistan designated for payment of sales tax.
17. Ambiguities in the recovery related statutory provisions removed and recovery procedure streamlined.

Extract of the Budget Highlights 2003—2004
1. Under SRO 500(i) 2003, dated 7th June 2003, reduction/waiver off the past liabilities of sales tax to already registered persons has been granted and non-registered persons have been provided incentives to come in the tax met by 31st August 2003. No audit shall be conducted of the persons availing benefit of this notification.
2. In order to encourage retailers to come in the tax net, limit for turnover tax for them has been enhanced from Rs. 5 million to 20 million. Necessary amendments in the Act as well as in the rules have been made accordingly.
3. New entry No. 60 has been added in the Sixth Schedule to grant exemption on supply of fixed assets against which the input tax adjustment is not available under a notification issued in terms of clause (b) of sub-section (1) of section 8 of the Sales Tax Act, 1990.
4. There was no concept of filing of revised return in the Sales Tax Act, 1990. Amendment in sections 26, 26A and 26AA of the Sales Tax Act, 1990, has been made which allows the registered/enrolled persons and retailers to file revised return on payment of evaded amount of tax, additional tax and penalty. However, full or partial exemption from payment of penalty in certain cases has also been granted. Show cause notice shall also stand abated on payment of tax and penalty.
5. The present provisions of law do not allow sales tax registered persons to deduct the amount of sales tax paid on purchases during any preceding tax period which could not be taken into account for the purposes of deduction of total amount of input tax during that period for any reason. Consequently, a large number of refund claims were arising whose disposal was inordinately delayed. Therefore, section 7 has been amended to allow adjustment of input tax of preceding three months.
6. Section 33 has been amended to reduce the penalty for late filing of return for the first fifteen days of the due date.


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