305, Frere Business Centre, Near Akhbar Market Saddar Karachi

AZIZ ISMAIL & CO 305, FRERE BUSINESS CENTRE, NEAR AKHBAR MARKET SADDAR KARACHI

Phone: 2721357-59 2772744-45 Fax : 2775000 Email : [email protected] Dear Clients,

There are various changes has been proposed in the Sales Tax Act 1990 through Budget 2007, However, the some major amendments are given below for your kind information.

SALES TAX & FEDERAL EXCISE

ZERO RATE INK AND EXERCISE BOOKS.

The Sales tax has been zero-rated on writing inks and exercise books under Notification SRO 462(I)/2007 effective from 9th June, 2007.

GENERAL AMNESTY SCHEME FOR DEFAULT SURCHARGE AND PENALTY.

The general amnesty for waiver of default surcharge and penalty has been announced under SRO 463(I)/2007 dated 09/06/2007 to the registered persons against whom any amount of sales tax is out standing on account of any audit observation, audit report, show cause notice or any adjudication order or who failed to pay any tax or claimed any inadmissible input adjustment, refund other than tax fraud. The Taxpayers who wish to avail the amnesty may deposit the principal amount of tax by 30.06.2007.

ZERO-RATING OF UTILITIES OF RICE EXPORTERS.

The Input tax on utility Bill of the Exporters of rice has been zero rated. Rice is exempt being agricultural produce and Exports are also zero-rated but the exporters were entitled to get refund of small incidental e.g. sales tax on utility bills. Therefore, it is proposed to zero-rate the utility of rice exporters. EXCISE DUTY ON CABLE TV OPERATORS ABOLISHED.

The excise duty @ Rs.8/- per connection per month was imposed on cable TV operators. It has been abolished through amendment in the First Schedule to the Federal Excise, 2005, effective from the 9th June, 2007.

EXEMPTION OF SALES TAX ON SURGICAL TAPES AND ULTRASOUND GEL.

Almost all Medicines are exempt from sales tax. Now, the scope of exemption has been extended. Surgical tapes and Ultrasound gel is now exempted through amendment in the Sixth Schedule to the Sales Tax Act, 1990. The same is effective from the 9th June, 2007. INCREASE IN RETAIL PRICE OF CIGARETTES.

The retail price of Cigarettes has been increased by 7%. Cigarettes are chargeable to sales tax on the basis of retail price as per Third Schedule of the Sales Tax Act 1990. Now, the element of sales tax and excise duty on the said product has been increased. It is enforced through amendment in the First Schedule to the Federal Excise Act, 2005. Effective from the 9th June, 2007.

INCREASE IN RATE OF SALES TAX FROM 15% TO 20% ON SPECIFIED RAW MATERIALS.

The rate of sales tax on import and supply of the raw materials such as iron steel, paper & board material as well as some specified chemicals is being increased from 15% to 20%. The description of raw material is given in the SRO 466(I)/2007 dated 9th June, 2007, effective from the 9th June, 2007. WITHDRAWAL OF INPUT TAX ADJUSTMENT.

The input tax adjustment is being disallowed on supply of utilities (electricity and gas) to the residential colonies of manufacturers. Now the manufacturers are not allowed to adjust input tax on utilities consumed on residential colonies of the manufacturer, it is imposed through SRO 464(I)/2007 dated 9th June, 2007, effective from the 9th June, 2007. WITHDRAWAL OF ZERO-RATING OF CHEMICALS HAVING MULTIPLE USAGE.

Al most all the chemical was zero rated previously. Now, There are some chemicals which have multiple uses. Therefore, through SRO 509(I)/2007, the said chemicals are being taken out of zero rating notification. It is effective from the 9th June, 2007.

COLLECTION OF SALES TAX OF CNG STATIONS FROM GAS DISTRIBUTION COMPANIES.

The collection of sales tax on supplies made by CNG stations, the responsibility to charge and deposit sales tax is being given to the gas distribution companies. CNG stations will not be required to remain registered with sales tax or keep any records. It is enforced through Sales Tax Special Procedure Rules, 2007 effective from the 1st July, 2007.

ABOLITION OF SALES TAX ON ADVANCE PAYMENTS

The special procedure in respect of advance payments has been with drawn. The Sales tax on advance payments received by registered persons is no more chargeable to sales tax. Now the registered persons shall be required to charge sales tax at the time of delivery of goods. It is enforce through amendment in the Sales Tax Act, 1990, effective from the 1st July, 2007. RESTRICTION OF INPUT TAX ADJUSTMENT

It is proposed that the adjustment of input tax is being restricted up to 90% of output tax. The system of adjustment notes and adjustment advices causing problems therefore, it is being abolished. New section 8B added to the Sales Tax Act, 1990, effective from 1st July, 2007. A new Sales Tax return form has been proposed for the said tax calculation. WITHDRAWAL OF SPECIAL PROCEDURES FOR COMMERCIAL IMPORTERS, IRON & STEEL SECTOR, RESTAURANTS, BISCUITS AND CONFECTIONERY.

A number of special procedures are being abolished. Now commercial importers, iron & steel sector, restaurants and biscuit and confectionery sector shall operate in standard sales tax system of payment of due tax after adjusting the input tax on purchases from the output tax. It is enforce through amendment in Sales Tax Special Procedure Rules, 2007, effective from 1st July, 2007 for iron & steel, biscuits and restaurants. However, In case of the commercial importers it is with immediate effect vide SRO 468(I)/2007 dated 9th June, 2007. INTRODUCTION OF CONCEPT OF WITHHOLDING AGENTS IN SALES TAX.

The new system of withholding deduction of sales tax in respect of supplies made to government has been introduced. It is to plug the revenue gap in Government supplies and to collect the due tax from general orders suppliers and wholesalers. However, the procedure of the said practice has not been announced so far. ENHANCEMENT IN PERIOD OF RECORD RETENTION.

The period of retention of Sales tax record is enhanced to five years from existing three years. It is proposed through amendment in Sales Tax Act, 1990 and Federal Excise Act, 2005, effective from 1st July, 2007. SINGLE SALES TAX RETURN.

Previously, there are number of sales tax returns were prescribed by the CBR. Now, the CBR has abolished the various sales tax returns and a separate invoice summary, a single sales tax return has been introduced and invoice summary has been made an annexure to the return for facilitation. LEVY AND DEPOSIT OF EXCISE DUTY IN THE MANNER OF SALES TAX.

The Excise duty shall now be leviable at the time of supplies instead of clearance. The excise duty and the sales tax shall be deposited with the return on the 15 th day of the following month. LINKAGE OF REGISTRATION THRESHOLD OF MANUFACTURERS WITH UTILITY BILLS.

A manufacturer having annual turnover below 5 million is exempt from sales tax. A new parameter based on utility bills is being introduced by amending the Sales Tax Act, 1990. Whereby the manufacturers having utility billing amount of more than Rs. 600,000 per annum shall also be required to obtain sales tax registration.

PRODUCTION OF AUDITED FINANCIAL ACCOUNTS

The Public Limited and Private Limited companies are bound to provide the audited financial accounts to the sales tax department. It is enforced through amendment in Section 22 of the Sales Tax Act 1990.

QUARTERLY SUMMARY & QUARTERLY RETURN ABOLISHED.

Quarterly summary and Quarterly return for commercial importer has been with drawn. Now the commercial importer is also required to submit the monthly sales tax return and summary. The Special Procedure for commercial importer has been with drawn.

WITH DRAWL OF 10 % COMPULSORY VALUE ADDITION.

The Commercial importer was paying 10 % value addition at the import stage at the time of clearance of goods. The said payment was in accordance to the special procedure. Since the special procedure has been with drawn therefore, now the payment of 10 % value addition at custom stage is not required. with effect from 9th June 2007.

SALES TAX ON RETAILER.

The sales tax on retailers has been simplified. Now the retailer is not required to file the monthly sales tax return. He will file return on yearly basis along-with the income tax return. The last date of filing of return will be 30th September by the following year. Moreover, the retailer will pay tax on all of his supplies even on the exempted and zero rated goods. However, the registered person having category of wholesaler and retailer shall be treated as wholesalers and he is required to file monthly return. The retailer is required to pay tax under the following table:

S. No Annual Turnover Sales Tax Rate Income Tax Rate 1 Up to Rs. five million Nil 0.5% of total Turnover 2 More than Rs. Five 0.5% of turnover Rs. 25,000 plus million which is in excess 0.5% of turnover and up to Rs. ten million of Rs. five million which is in excess of Rs. five million

3 More than Rs. ten Rs. 25,000 plus Rs. 50,000 plus million 0.75% of turnover 0.75% of turnover which is in excess which is in excess of Rs. ten million of Rs. ten million:

Yours truly, For AZIZ ISMAIL & CO