FINDINGS/RECOMMENDATIONS DR. ASIF MAHMOOD JAH, FEDERAL TAX OMBUDSMAN.----WHEREAS it was brought into the notice 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 Federal Board of Revenue, in order to give effect to the budgetary changes, issued Custom General Order No. 12 of 2019 dated 30.02.2019, whereby, the following Implementation and Monitoring procedures was prescribed:-
(i) Necessary changes to be made in WeBOC by the Director General of Reforms and Automation (Customs) and WeBOC Glo team to facilitate the declaration of retail price of imported items notified in the Third Schedule to Sales Tax Act, 1990 at the time of filing of goods Declaration (GD).
On the basis of PCT heading, WeBOC shall require the importer to declare retail price under 'the Third Schedule' for sales tax purposes and calculation of sales tax liability shall be made accordingly on the basis of retail price.
(ii) In case the Goods Declaration for clearance of Third Schedule item is marked for physical examination, the examining officer shall report item wise printed retail price in the examination report and also upload the images of retail price in the system,. In case the retail price is not found printed or embossed on the third Schedule items, the same shall be clearly indicated in the examination report.
(iii) Assessments of sales tax on retail price as per Third Schedule on the goods contained in the GD shall be on the basis of retail price reported in the examination report if the same is found to be higher than the retail price declared at the time of filing of GD.
(iv) As retail price of imported goods is higher than the C&F value because it includes the margin of wholesaler and retailer, therefore, the assessing officer shall ensure that the retail prince for assessment of sales tax is more than the value assessed under section 25 or 25A of the Customs Act, 1969 for assessment of Customs duty.
(v) The Deputy/Assistant Collector Assessment Group shall monitor the collection of sales tax on retail price basis for Third Schedule items pertaining to his / her group including the GDs cleared through green channel.
(vi) Necessary data access shall he made available in WeBOC by the Directorate General of Reforms and Automation (Customs). In case of any short payment, the GD shall be reassessed promptly for affecting the recovery of short paid amount of sales tax.
(vii) The data pertaining to retail price and subsequent collection of sales tax at import stage shall be automatically transferred to sales tax data base of IRIS on daily basis for facilitation of tax payers and monitoring by sales tax authorities, once necessary system linkages for data transfer are made by IRS.
(viii) The Directorate General of Post Clearance Audit shall scrutinize the cleared GDs for ascertaining correct levy and collection of the sales tax on retail price basis on import stage on items notified in the Third Schedule to the Sales Tax Act, 1990.
(ix) A monthly report regarding collection of sales tax on Third Schedule items at import stage on the basis of retail price shall be forwarded by all Chief Collectors to the Board on the following format: GD No. & Date Name of importerNTNSTRMPCT CodeItem descriptionQuantityUoMRetail Price per Unit (in PKR)Total Retail Price (in PKR)Sales tax (in PKR)
(1) (2) (3)(4) (5) (6) (7) (8) (9) (10) (11)
2. With a view to further facilitate the trade, the Federal Board of Revenue vide STGO NO. 102/2019 dated 15.07.2019 and STGO 103/2019 dated 07.08.2019 allowed clearance of stickers printed with retail price upto 31.07.2019 and 31.08.2019 respectively.
3. Further, the Federal Board of Revenue vide letter No.1(2)Chief/Auto&AM/20194103895-R dated 05.08.2019 constituted various teams to monitor the collection of Sales Tax at import stage from the importers of retail goods/Third Schedule items. The nominated teams were entrusted the following tasks by the FBR vide letter dated 05.08.2019:-
(i) Obtain Retail Price Lists from Concerned LTU/RTO having jurisdiction over importers of goods falling in 3rd Schedule.
(ii) Ensuring proper entry of all the retail items in the WeBOC system.
(iii) Liaison with customs authorities at Ports regarding proper implementation of valuation of Third Schedule items.
(iv) Submit weekly report to FBR regarding implementation of new budgetary measures at import stage.
4. In the above backdrop, the Directorate General of Reforms and Automation (Customs), vide this office letter dated 08.02.2022 and 15.02.2022, was requested to furnish updated progress report on the development and functionality of the WEBOC module developed to cater for the budgetary changes made vide Finance Act, 2019. The Director Reforms and Automation (Customs) vide letter dated 21.02.2022 informed that:-
(i) It is further submitted that the necessary development on the subject matter as per CRF No. 1/2-STB/2019 has been carried out by the Directorate of R&A and multiple User Acceptance Tests to this effect were also conducted. However, the Sales Tax IR team did not sign off/endorsed the changes, so the module could not be deployed. This office vide letter 5.11.2019 (copy enclosed) requested the Commissioner IR for signing off the pending CRF but no response has been received till date.
(ii) Subsequently,. the matter was taken up with the Board and multiple requests have also been sent (annex-B, C, D) for early resolution of the matter, but updated response/feedback is still awaited.
5. Progress in this regard was also called from the Chief Commissioner, Large Taxpayer's Office, Karachi' who, vide letter dated 19.03.2022, inter alia, submitted that;
(i) The Director (Reforms and Automation), Customs House, Karachi however informed the Commissioner Inland Revenue, Large Taxpayers' Unit, Karachi through letter C.No.WeBOC/ Misc.Corresp.Board/27/1/20160(part-9)/414 dated 05.11.2019 that the changes in the software required by the Board cannot be made due to technical reason (copy attached as Annex-D). This information was duly communicated to the Board through letter C.No.Jud-3(7)/15-16/Z- I/ST&EF/13/781 dated 07.11.2019 by the Chief Commissioner IR, Large Taxpayers' Unit, Karachi.
(ii) Meanwhile, the Committee formed by the Board relating to LTU, Karachi finalized its assignment and communicated market prices for newly added Third Schedule items to the Customs Authorities via email dated 09.12.2019.
(iii) The Customs, authorities were however of the view that since STGO 103/2019 has fixed price at 130%, therefore, in order to change it, another STGO should be issued. The Committee relating. to LTU Karachi determined the value addition and sent it to the Board on 18.12.2019 through a comprehensive report.
(iv) It can be seen from the above-narrated facts that the Customs authorities were not incorporating the changes in the software desired by the Board and were requiring legal sanction from the Board for incorporating market prices of newly added Third Schedule items in the shape of a Notification or STGO. These two averments were duly communicated to the Board by the Large Taxpayers' Office, Karachi, Therefore no further action is pending at the end of this office.
6. In view of the foregoing narrative, it is established 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.
7. In view of the foregoing, alarming situation and fearful of worst case scenario i.e. massive revenue loss, a report was called 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 the following position regarding detections made by their Directorate during the period 15.02.2019 to 03.09.2021.
(i)Total No. of GDs examined since the imposition of Sales Tax on Retail price, vide Finance Act, 2019-20 read with sub-para (1), Para-2 of CGO No. 12/2019, with a view to ascertain correct application/imposition of Sales Tax580,287 (ii)Total No. of GDs identified where non-payment short payment has been detected 97,963 (iii)Total No. of Demand Notices issued along with the amount involved. 11,173 (iv)Amount recovered on account of short payment/Non-payment of sales tax on the basis of R.P286.632 (Million)
8. The above data is reflective of the actual/potential loss of revenue being incurred due to in action on the part of those who were made responsible for seamless and effective transition through systemic changes by devising an 1.1' based solution, for incorporating budgetary changes in the WEBOC. The three committees constituted by the FBR failed to perform and complete the assigned task with sincerity of purpose despite 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 Rs. 286.632 million, the same appears to be tip of an ice-berg, keeping in view the enormity of the task and limited B human resource, at the disposal of DG, Post Clearance Audit. 'the efforts of DG PCA are appreciated in this regard. , FINDINGS:-
9. Failure to develop effective and robust mechanism/module to capture due amount of sales tax at the import stage resulting is enormous C loss of legitimate revenue, tantamounts to maladministration under Section 9(2) of the Federal Tax Ombudsman Ordinance, 2000.
RECOMMENDATIONS:-
10. FBR to ensure;
(i) that a fool proof, effective, dynamic and functional module is developed in close coordination and active engagement of DG, Reforms and Automation, (Customs) and Inland Revenue Wing;
(ii) DG, PCA to constitute a dedicated team under the supervision of Additional Director at each regional Directorate for in depth Audit of this sector and submit monthly progress report of detections made and tax collected; till the final deployment of WEBOC module;
(iii) Chairman FBR to provide additional staff to DG, PCA for the above-mentioned task in consultation with Director General, PCA. Islamabad, and
(iv) report compliance in 60 days.