FBR fails to ensure automated collection of sales tax on retail price

The Federal Board of Revenue has failed to ensure automated collection of sales tax on retail prices in case of specified goods.

This has been disclosed in an investigation started by the Federal Tax Ombudsman.

As per the details, It was brought to the notice of the FTO that certain goods were made chargeable to sales tax on the basis of Retail price at the time of import by virtue of amendments made in Section 3(2) of the Sales Tax Act, 1990 vide Finance Act, 2019-20.

The FBR, in order to give effect to the budgetary changes, issued Custom General Order No. 12 of 2019 dated 30.02.2019, whereby, the Directorate General of Reforms & Automation (Customs) was required to make necessary changes in WeBOC clearance system of Customs for charging Sales Tax on Retail Price.

FTO has observed that the department has so far failed to develop a functional and practicable solution to the problem at hand i.e. Development of an I.T. based module to cater for the budgetary changes with a view to capture and realize the exact amount of due taxes at the import stage on items subjected to tax on retail price vide Finance Act, 2019.

In view of the foregoing, alarming situation and fear of worst-case scenario i.e. massive revenue loss, a report was called by FTO from the Directorate General of Post Clearance Audit regarding detections made by them in this regard.

The DG, Post Clearance Audit vide letter dated 25.04.2022 communicated that its directorate examined 580,287 no of Goods Declarations in which 97963 identified subsequently, the directorate served 11,173 notices besides recovering Rs286.632 million account of short payment/Non-payment of sales tax on the basis of the retail price.

The three committees constituted by the FBR failed to perform and complete the assigned task with sincerity of purpose despite a lapse of about three years. Although the Directorate of Post Clearance Audit has made substantial detections of revenue loss and recoveries to the tune of Rs286.632 million, the same appears to be the tip of an iceberg, keeping in view the enormity of the task and limited human resources, at the disposal of DG, Post Clearance Audit. The efforts of DG PCA are appreciated by FTO in realizing notable legitimate government revenue.

In view of the significant revenue potential of the issue, FTO has directed FBR to ensure a foolproof, effective, dynamic and functional module is developed in close coordination and active engagement of DG, Reforms & Automation, (Customs) and Inland Revenue Wing;

besides, DG, PCA to constitute a dedicated team under the supervision of an Additional Director at each regional Directorate for in-depth Audit of this sector and submit a monthly progress report of detections made and tax collected; till the final deployment of WeBOC module;

Chairman FBR to provide additional staff to DG PCA for the above-mentioned task in consultation with Director General, PCA, Islamabad.

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