ByThe FBR aims to enhance tax collection and curb tax evasion through these changes.By bringing more businesses into the formal tax system, the government aims to increase tax revenue and ensure a level playing field for all businesses.
SRO and Compliance:
The government recently issued an SRO specifying that retailers with an advance tax exceeding Rs. 100,000 must register as Tier-1 retailers. For unregistered businesses:
- Filer status leads to better terms (e.g., higher transaction thresholds).
- Non-filers face harsher restrictions and higher tax rates (e.g., 2.5%).
Key Points of the Amendment:
Previous Limit:
Under Section 73 of the Sales Tax Act, unregistered individuals or entities could sell up to Rs. 10 million monthly or Rs. 100 million annually to manufacturers, distributors, wholesalers, or retailers.
New Amendment:
These limits have been abolished. The government has not specified the new thresholds but stated that they will be notified through updated rules or statutory regulatory orders (SROs).
Expected New Limits:
Based on recent SROs, the new threshold for unregistered persons might be significantly lower, possibly around Rs. 20 million annually for filers.
For non-filers, the limit might be as low as Rs. 4 million annually, derived from the advance tax criteria and tax rates under Section 236H.
Impact of the New Law:
- Registration Requirements:
Businesses crossing the new thresholds will be required to register for sales tax and comply with point-of-sale (POS) integration, particularly for Tier-1 retailers (those with advance tax liabilities exceeding Rs. 100,000 in a given period). - Sales to Unregistered Persons:
While there’s no penalty for unregistered buyers, sellers face consequences. If a seller supplies goods exceeding the prescribed limit to unregistered persons:
The input tax for such sales will be disallowed.
This rule aims to compel suppliers to ensure their buyers are registered for sales tax.
- Tax Avoidance Tactics Curbed:
Previously, businesses could open multiple accounts (e.g., Account A and Account B) to keep their turnover below Rs. 100 million and avoid turnover tax. The reduction in limits and stricter rules will make this strategy ineffective. - Impact on Supply Chain:
The change affects all participants in the supply chain — manufacturers, distributors, retailers, and wholesalers — by encouraging or compelling them to register for sales tax. This will enhance documentation and broaden the tax base. - Increased Tax Collection:
The amendment aims to increase tax collection by bringing more businesses into the tax net. As the tax burden gets distributed among a larger pool of taxpayers, those already compliant will experience reduced pressure.
Example:
A factory selling to unregistered buyers will face restrictions. For instance:
Sales to registered customers can continue without limits.
Sales to unregistered customers will be capped, with disallowance of input tax on exceeding the limit.
Retailers, wholesalers, and distributors will need to assess their sales and register if their transactions exceed the notified thresholds.
The amendments to Section 73, coupled with SRO-based updates, aim to promote compliance, increase tax documentation, and curb evasion tactics. These changes are likely to take effect in early January after approval, ensuring more equitable tax collection and an expanded tax base.
Certainly, here’s the article focusing on the mandatory sales tax registration:
Key Changes:
- Abolition of Turnover Threshold: The previous threshold of Rs. 100 million annual turnover for mandatory sales tax registration has been abolished.
- Focus on Advance Tax Liability: The new criterion for mandatory registration is based on the annual advance tax liability, making it more relevant to the business’s tax exposure.
- Point-of-Sale (POS) Integration: Businesses with an advance tax liability exceeding Rs. 100,000 will also be required to implement a point-of-sale system.
- Impact on Input Tax Recovery: Businesses will be subject to stricter input tax recovery rules. They will only be able to claim input tax credits for sales made to registered customers.
- Administrative Burden: The new requirements may increase administrative burden for businesses, particularly those operating close to the threshold.
Next Steps:
Businesses should review their advance tax liability and determine if they are required to register for sales tax under the new rules. Those who are required to register should take the necessary steps to comply with the new requirements, including implementing a point-of-sale system.
