The Institute of Chartered Accountants of Pakistan (ICAP) has urged tax authorities to address hurdles faced by businesses regarding online transactions and business bank account management. Their proposals target streamlining tax compliance for businesses in the upcoming 2024-25 budget.
Challenges with Online Marketplaces and Payment Gateways:
- Sales Tax Act Restriction: Section 73(1) of the Sales Tax Act, 1990, mandates payments directly from a buyer’s to a supplier’s bank account for claiming input tax credit.
- Digital Transaction Gap: This requirement creates a hurdle for online transactions processed through marketplaces and payment gateways, as payments might not directly go to the supplier’s account.
ICAP’s Proposed Solution:
- The ICAP recommends amending Section 73(1) to include a proviso that recognizes payments made through online marketplaces and payment gateways on the supplier’s behalf as valid for claiming input tax credit.
Discrepancies in Business Bank Account Declaration:
- Outdated Form Reference: The Sales Tax Act defines a Business Bank Account as one declared to the Commissioner via Form STR-1.
- Form Unavailability: Form STR-1 is not available online, directing users to the IRIS portal for income and sales tax returns.
- Incorrect Form Usage: Changes are currently made through Income Tax Form 181, not applicable under the Sales Tax Act.
ICAP’s Proposed Solution:
- The ICAP proposes replacing the reference to Form STR-1 in Section 73 with Form 181 (Registration Form).
- Additionally, they recommend updating the form’s title to “181-73: Form of Registration/Modification (Income Tax, Sales Tax, and FED)” for clarity.
Expected Benefits of Implementation:
- Reduced Compliance Burden: The proposed changes can simplify tax compliance for businesses using online marketplaces and payment gateways.
- Encouragement for Digital Transactions: Addressing these issues can incentivize businesses to adopt online payment methods without jeopardizing input tax claims.
- Improved Business Environment: Streamlining procedures can foster a more conducive environment for technology-driven businesses to operate and grow.
Looking Ahead:
The ICAP’s proposals aim to bridge the gap between traditional tax regulations and the growing landscape of online commerce. By addressing these challenges, Pakistani businesses can benefit from a more efficient and adaptable tax compliance system.
