Banking Law and Practice

Table of Contents

Contents
Chapter 1 INTRODUCTION.......................................................................................................... 3 1.1 overview................................................................................................................................ 3 1.2 Pakistans Taxation System .................................................................................................. 4 1.3 Sales Tax ............................................................................................................................... 4 1.4 Liability to Sales Tax ........................................................................................................... 6 1.5 REGISTRATION ................................................................................................................. 6 1.6 RETURNS ............................................................................................................................ 7 1.7 MAINTENANCE OF RECORDS ....................................................................................... 7 1.8 REFUNDS OF SALES TAX ............................................................................................... 7 1.9 ADDITIONAL TAX ............................................................................................................ 7 1.10 ARREARS ......................................................................................................................... 8 1.11 Sales Tax refund procedure and rules ................................................................................. 8 1.11.1 Short title, application and commencement. ............................................................... 8 1.11.2 Definitions.................................................................................................................... 8 1.11.3 Establishment of refund division. ................................................................................ 9 1.11.4 Filing of refund claim .................................................................................................. 9 1.11.5 Scrutiny of refund claim ............................................................................................ 10 1.11.6 Sanction and payment of refund claim ...................................................................... 10 1.11.7 Extent of payment of refund claim ............................................................................ 11 1.11.8 Action on inadmissible refunds ................................................................................. 13 1.11.9 9. Supportive documents ............................................................................................ 13 1.11.10 Refund damn of an investor ..................................................................................... 15 1.11.11 Refund under section 66 .......................................................................................... 15 i

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Banking Law and Practice

Table of Contents

1.11.12 Profiling of exporter for the purpose of refund ........................................................ 15 1.11.13 Miscellaneous .......................................................................................................... 18 1.11.14 Saving ...................................................................................................................... 18 Chapter 2 SALES TAX REFUND PROCEDURE FOR MOTOR VEHICLE DEAL ................. 19 2.1 General Sales Tax Refund Procedure in state of Michigan ................................................ 19 2.2 Sales Tax Refund Procedure for Manufacturer Buy-Back Agreements Under the "Lemon Law" .......................................................................................................................................... 20 Chapter 3 DATA COLLECTION ................................................................................................. 22 3.1 Data collection method ....................................................................................................... 22 Chapter 4 SWOT ANALYSIS ...................................................................................................... 23 4.1 Recommendations ............................................................................................................... 23 Chapter 5 CONCLUSION ............................................................................................................ 26 Chapter 6 References .................................................................................................................... 28

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Taxation Management

Chapter 1 INTRODUCTION
1.1 overview
The constitution empowers the Federal Government to collect taxes on income other than agricultural income, taxes on capital value, customs, excise duties and sales taxes. The Central Board of Revenue (CBR) and its subordinate departments administer the tax system. Each of the three principal taxes has a different history and different set of issues. For a large number of income tax payers the core of the business process is pre-audit and assessment by a tax official. This process gives considerable discretion to tax officials, with potential for abuse. Moreover, this process is also not tenable as the number of taxpayers increase. The report is focused on a total overhaul of the process and organization of income tax. Sales tax is recent and its process and organization is adjusted to the needs of an expanding tax base. These are based on selfassessment and selective audit. Similarly, in customs the accent is on accelerating and broadening the changes begun in recent years. Before long, central excise will be subsumed in sales tax. During the nineties, despite many changes in the tax regime and introduction of withholding and presumptive taxes, Federal Government tax to GDP ratio has varied narrowly around eleven percent. The tax base has grown but still remains narrow and skewed. The number of income tax filers is around one million. At less than one per cent of the population, it is a lower proportion than in many developing countries. Pakistans fiscal crisis is deep and cannot be easily resolved. Taxes are insufficient for debt service and defense. If the tax to GDP ratio does not increase significantly, Pakistan cannot be governed effectively, essential public services cannot be delivered and high inflation is inevitable. The Reforms to improve our taxation system need to be focused on human resources, business process and organization, corruption and information management. An effective revenue organization must be comprised of trained and dedicated persons with integrity, transparent processes, a comprehensive information system, and taxpayer education. The paper recommends 3

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Taxation Management self-assessment, selective audit, and expansion and upgrading of information management, emphasizes reduction of discretion and direct contact between tax collector and taxpayer.

1.2 Pakistans taxation system

Federal taxes in Pakistan like most of the taxation systems in the world are classified into two broad categories, viz., direct and indirect taxes. A broad description regarding the nature of administration of these taxes is explained below: Direct Taxes Personal Tax Tax on Companies Inter-Corporate Dividend Tax Treatment of Dividend Income Unilateral Relief Agreement for avoidance of double taxation Customs Central Excise Sales Tax

Here in this report sales tax has been explained in details.

1.3 sales tax

Sales Tax was a provincial subject at the time of partition. It was being administered in the provinces of Punjab & Sindh as provincial levy. Sales tax was declared a federal subject in 1948 through the enactment of General Sales Tax Act, 1948 and in 1952, this levy was transferred permanently to the Central Government.Sales tax was levied at the standard rate of 6 pies per rupee at every stage whenever a sale was effected. The trading community protested against this system, and this resulted in the enactment of Sales Tax Act 1951.

A system of licensed manufacturers & wholesalers was instituted whereby they were allowed to purchase goods free of sales tax from each other and pay tax on sales to unlicensed traders. Allama Iqbal Open University Islamabad 4

Taxation Management Imports were chargeable to Sales Tax but the licensed manufacturers & wholesalers were allowed to import goods without the payment of Sales Tax. Later on Sales Tax became chargeable on locally produced & imported goods at the time of their sales & import, respectively. The sales tax, was collected under the Finance Ordinance, 1956, on goods which were chargeable to Central Excise Duty, as if it were a duty of Central Excise. In April 1981, by virtue of an amendment in the Sales Tax act, 1951, the collection of Sales Tax on non-excisable goods was also entrusted to the Central Excise Department.

In the late eighties the government decided to replace Sales Tax with the Value Added Tax in the country as a part of its structural adjustment program which was undertaken to correct anomalies & distortions both in our tax & non-tax regimes. Accordingly new enactment titled Sales Tax Act 1990 replaced Sales Tax Act 1951 with effect from 1-11-1990. Sales Tax is levied at various stages of economic activity at the rate of 15 per cent on: All goods imported into Pakistan, payable by the importers All supplies made in Pakistan by a registered person in the course of furtherance of any business carried on by him There is an in-built system of input tax adjustment and a registered person can make adjustment of tax paid at earlier stages against The tax payable by him on his supplies. Thus the tax paid at any stage does not exceed 15% of the total sales price of the supplies The sale tax is evolving into Pakistans key revenue earner is beyond any doubt. What is even more impressive is the growth of sales tax revenue during the latter half of the nineties. During this period, real sales tax growth was 2.9% per annum faster than the growth of direct taxes, a true testimony to its buoyancy. Although the performance of the sales tax has been impressive, it still remains short of the potential achieved by high performing developing countries, where its 5

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Taxation Management contribution to the GDP ranges between 4% and 9%4. The Proposed Reforms shall be driven by four broad objectives: To increase the long-term revenue generation capacity of the administration To lower compliance costs of taxpayers through process reform To reduce the misuse of discretion by reducing the points of contact between the taxpayers and the tax officials. To create an impartial and judicious adjudication system, which gives relief when faced with excesses

1.4 liability to sales tax

Following sectors are required to get registration for sales tax and charge sales tax on their supplies/ services: Manufacturing Import Services Distribution Wholesale Retail stage.

Previously it was being charged at the manufacturing & import stage, and its scope has been extended now to remaining sectors. Sales Tax is chargeable on all locally produced and imported goods except computer software, poultry feeds, medicines and unprocessed agricultural produce of Pakistan and other goods specified in Sixth Schedule to The Sales Tax Act, 1990.

1.5 reGistration
Every person in sectors mentioned above, who makes a taxable supply in Pakistan is required to be registered under the Sales Tax Act, 1990. However, manufacturers having taxable turnover below five million rupees and also utility bill below Rs. Seven lac during the last twelve months are exempted from registration and payment of sales tax. Similar exemption is also available to Allama Iqbal Open University Islamabad 6

Taxation Management retailers having total turnover below Rs. five million in the last twelve months.The rate for sales tax is 16% of value of supplies. However, there are some items which are chargeable to sales tax at 18.5% or 21% of value of supplies (see SRO 644(I)/2007 as amended by SRO 537(I)/2008 dated 11th June 2008)The Registration Form(s) are submitted to the Central Registration Office, FBR, or Sales Tax Collectorates/ RTOs for the allotment of a Registration Number by the persons liable to be registered under the Sales Tax Act. The taxpayer is then issued a Certificate of Registration.

1.6 retUrns
As per law each registered person must file a return by the specified date, regarding the sales made. All registered persons are required to file returns electronically.There are some sectors which are required to file returns on quarterly (tri-monthly) basis while some may have to file monthly.

1.7 maintenanCe oF reCorDs

All registered persons are required to maintain records at their business premises of the goods purchased and supplied made by them. All the records are required to be kept for a specified period.

1.8 reFUnDs oF sales tax

In cases where the Input Tax exceeds the Output Tax due from the registered person in respect of a tax period because of exports or other zero-rated supplies, the excess amount of input can be refunded after the procedure specified by the federal board of revenue is followed.

1.9 aDDitional tax

If a sales tax registered person does not pay the tax within the specified time or claims a tax credit or refund which is not admissible to him, or incorrectly applies the rate of zero percent to the supplies made by him, he has to pay the additional tax at rate of One and half percent of tax due or the part thereof per moth.However, in case of tax fraud, the rate of may be increased more. 7

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Taxation Management

1.10 arrears
The work regarding Arrears gets initiated in the following cases: Late or no submission of the Returns Amount paid is less than the tax amount payable A demand raised after an audit/ scrutiny is upheld after adjudication

1.11 sales tax reFUnD ProCeDUre anD rUles

1.11.1 short title, aPPliCation anD CommenCement. (1) These rules may be called Sales lax Refund Rules, 2000. (2) These shall apply to i. Registered manufacturer-cum-exporters and commercial exporters who desire to zero rate all, or part, of their supplies under section 4 of the Sales Tax Act, 1990. ii. Registered persons who claim refund of such excess amount of input tax as is not fully adjusted against the tax payable during a period of one year following the tax period in which the credit first arose'. iii. Investors claiming refund under the .second proviso to subsection (1) of section 10 of the Sales Tax Act, 1990. iv. Registered persons claiming refund of tax under section 66 of the Sales Tax Act, 1990

(3) These shall come into force at once. 1.11.2 DeFinitions (1) In these Rules, unless the subject or context otherwise requires, i. ii. Act means the Sales Tax Act, 1990. Claimant means a registered person being a manufacturer-cumexporter or a

commercial exporter, who files a sales tax return claiming refund under these rules and includes an investor or any other registered person entitled to claim refund under the Act. 8

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Taxation Management iii. Commercial Exporter means a person who having no manufacturing facility of his own, opts for voluntary registration under section 18 of the Act for exclusively making

zero-rated supplies of same state goods and claims refund of input tax thereon. iv. Officer-in-charge means deputy collector of sales tax or any officer of sales tax of

senior rank who holds full or partial charge of the Refund Division. v. Investor means a person entitled to claim refund of sales lax on plant and machinery under second proviso to sub-section (1) of section 10 of the Act. vi. same-state-goods means goods produced by a registered manufacturer-cum-exporter for export or purchased by a commercial exporter against tax invoice for export as such and includes the goods which have been got manufactured or processed from one or more than one registered vendor against tax invoice against processing charges or as the case may be, manufacturing or conversion charges. vii. Supportive documents means documents prescribed in rule 9347 whether on electronic media or otherwise. viii. Processing Officer means auditor or deputy superintendent deputed by the officer-incharge to process and scrutinize a refund claim. (2) All other expressions used but not defined in these rules shall have the same meanings as are assigned to them in the Act. 1.11.3 establishment oF reFUnD Division. (1) There shall be established a Refund Division in each Collectorate of Sales Tax to receive, process and settle the refund claims filed under the Act. (2) A deputy collector or such senior officer as may be nominated by the Collector of Sales Tax, shall be head of the Refund Division :Provided that Collector of Sales Tax may distribute work of the Refund Division amongst more than one deputy collectors in. such manner as hemay deem fit. 1.11.4 FilinG oF reFUnD Claim (1) Monthly sales tax return filed by a claimant shall be treated as refund claim once all the supportive documents have been received and shall be processed accordingly. 9

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Taxation Management (2) The claimant shall forward to the officer-in-charge a legible photocopy of the bank-receipted return, referred to in sub-rule (1), duly accompanied by the requisite supportive documents for processing and settling the refund claim. Provided that in case of a refund claim where such supportive documents have not been so received, the officer-in-charge may require the claimant through telephone, facsimile or in writing to furnish the same within such time as may be specified by him. 1.11.5 sCrUtiny oF reFUnD Claim (1) On receipt of a refund claim the processing officer shall carry out necessary examination and scrutiny in order to ascertain the bona fides or otherwise of the refund claim under the law. He shall check the accuracy of declarations and calculations, etc., on the sales tax return involving the amount of refund claimed and satisfy himself that the amount so claimed as refund is properly supported by the documents as prescribed under these rules to prove the genuineness and admissibility of the refundable amount. (2) After having satisfied himself about the genuineness and admissibility of the refund claim, the processing officer shall submit a written comprehensive refund examination report within seven days of receipt of the supportive documents to the concerned senior auditor or superintendent who shall give his conclusive recommendations thereon and pass it on to the officer-in-charge within three days of receipt of the case from the processing officer. The officerin-charge shall satisfy himself about the genuineness and admissibility of the claim on the basis of the said report, recommendations and supportive documents. (3) The officer-incharge may, under circumstances of exceptional nature and for reasons to be recorded in writing, make or cause to be made further scrutiny or verification including

examination of relevant business records and stock taking for determining the genuineness and admissibility of a refund claim. 1.11.6 sanCtion anD Payment oF reFUnD Claim (1) If on the basis of supportive documents, refund examination report, recommendations,

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Taxation Management scrutiny or verification report as the case may be, the officer-incharge is fully satisfied about the genuineness and admissibility of the claim, he shall, subject to the provisions of rule 7 sanction the claim and send the original copy of the sanction order to the treasury officer for issuance of cheque to the claimant: Provided that if the claimant is liable to pay any duty or tax, additional duty or additional tax or penalty under any law administered by the Board, payment of the refundable amount shall be made only after adjustment of unpaid outstanding amount of duty or tax or as the case may be, additional duty or additional tax and penalty. (2) The treasury officer, before issuing cheque 10 the claimant, shall personally ensure that cheque of only such amount is issued to the claimant as is specified and sanctioned in the sanction order: Provided that refund cheque shall be issued to the claimant only through courier service, or through urgent mail service, with due acknowledgement: Provided further that the treasury officer shall maintain all the records and registers, etc

prescribed under the treasury or financial laws for the purpose of keeping account of payment of Federal revenue refunds. (3) The duplicate copy of the sanction order shall be retained the Refund Division in relevant file. 1.11.7 extent oF Payment oF reFUnD Claim (1) Refund to a commercial exporter shall be sanctioned and paid only to the extent of input tax involved in the goods actually exported and within one month of the submission of supportive documents. (2) In case of manufacturer-cum-exporter, refund on zero-rated supplies shall be sanctioned and paid within one month of furnishing of the supportive documents, and refund, if any, on domestic supplies or, as the case may be, input stocks in balance shall be sanctioned and paid in the following manner namely : Allama Iqbal Open University Islamabad 11

Taxation Management (i) Fifty percent of such claim shall be sanctioned and paid within one month of filing of supportive documents. (ii) The remaining fifty per cent shall be sanctioned and paid after: (a) verification of deposit of tax paid on goods in respect of which refund of input tax has been claimed : and (b) if not already done in terms of sub-rule (3) of rule 5, scrutiny of relevant records or accounts and verification of stocks of the claimant: Provided that in case action under this clause is not completed within sixty days of the receipt of supportive documents, the remaining fifty per cent refund shall be paid if otherwise admissible on the basis of supportive documents and action under the said clause shall be completed thereafter :Provided further that manufacturer-cumexporters who zero-rate their supplies and also make domestic supplies duly reflected in their monthly return, may, ipso facto, deduct the amount of tax, payable on their domestic supplies from the amount of refund due on their zero-rated supplies and claim refund only for the balance amount, if any. (3) In order to calculate the refund components of zero-rating and local supplies, the following formula shall be applied in case of manufacturer- cum-exporters, namely : (i) Zero-rated component .. (il) Local sup plies component .. .. .. .. .. E x R D+E .. DxR/D+E

E denotes value of exports ; D denotes value of domestic supplies ; and R denotes the amount of refund claimed ; Illustration Suppose E=Rs. 600 D=Rs.400 R-Rs.100 then zero rated component is=ExR =600 x 100=Rs. 60 Allama Iqbal Open University Islamabad

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Taxation Management D+E 400+600' and local supplies component is D xR/ DTE = 400 x 100/600+400 =Rs. 40

(4) The time limit given in this rule shall not apply to cases subjected to further scrutiny or verification under sub-rule (3) of rule 5: Provided that the officer-in-charge shall inform the claimant about the subjection of his refund claim to scrutiny or verification as the case may be. (5) The refund claims of registered manufacturers, importers, wholesalers or retailers shall be sanctioned and paid in the manner prescribed in clause (i) and clause (ii) of sub-rule (2) read with the first proviso to sub-section (1) of section 10 of the Act. 1.11.8 aCtion on inaDmissible reFUnDs (1) In case any refund claim or part thereof is found not genuine and not admissible under the law, a notice shall be served on the claimant requiring him to show cause in writing, within fourteen days, as to why the claim or as the case may be, part thereof should not be rejected and as to why the claimant should not be proceeded against under the relevant pro-visions of law : Provided that in cases where the amount of refund liable to rejection does not exceed five million rupee, the officer-in-charge shall bring to the knowledge of additional Collector having jurisdiction in writing on the relevant file the reasons for issuing the notice: Provided further that the cases involving amounts of refund liable to rejection exceeding five million rupees shall be brought to the knowledge of the Collector before issuance of notice. (2) After affording a reasonable opportunity of hearing to the claimant, the officer-in-charge shall issue the show cause notice to such claimant and pass an adjudication order specifying reasons therein: Provided that in case the claimant does not respond to the show cause notice or does not appear himself, or through his authorized representative, to defend his position on three dates of hearing, the officer-in-charge may decide the case ex parte on the basis of fads and evidence available onrecord. 1.11.9 9. sUPPortive DoCUments (1) A manufacturer-cum-exporter or a commercial exporter shall submit the following documents in support of his refund claims, namely : 13

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Taxation Management Input tax invoices and/or as the case may be, bills ofentry Zero-rated invoices in case of export Output tax invoices in case of domestic supplies Tax invoices of- intermediary processes as and if applicable Bill of exports (quadruplicate copy) indicating Mate Receipt number and date or as the case may be. Airway bill number or railway receipt number and date or postal receipt number and dated Bill of lading, and airway bill or as the case may be, railway receipt and postal receipt indicating transportation of goods out of Pakistan The statement showing the position of stocks of major inputs and outputs carried over from the previous tax period, additions in such stocks, stocks consumed or supplied during such period and stocks in balance, if any. (2) An investor shall furnish the following documents, namely :- Bills of entry 01 lax invoices indicating import or purchase of plant and machinery, its components and spare-parts Plot allotment order or ownership documents of the premises where such plant and machinery has been installed; and Rent deeds in case the plant and machinery has been installed in the rented premises. (3) In case of refund claimed under section 66, the following documents shall be submitted, namely : Bill of entry or input tax invoices and tax invoices of intermediary processes (if applicable) as the case may be Output tax invoices in case goods have been supplied domestically Zero-rated invoices in case goods have been exported Export documents mentioned in sub-rule (1) Statement of stocks if needed in support of the claim (4) The claimant shall submit the original supportive documents in original along with one set of photo copies and the original supportive documents shall be returned to the claimant after tallying with the photo copies by the officer-in-charge or any officer authorized by the Collector Allama Iqbal Open University Islamabad 14

Taxation Management in this behalf, who will endorse his proper verification on each photo copy: Provided that the original quadruplicate copy of the bill of export shall be returned to the claimant after recording the following endorsement under the full signatures and official stamp of the said officer, namely:- Zero-rating has been claimed on this bill of export. (5) The officer-in-charge may, for reasons to be recorded in writing and after taking permission from the Collector, call for any other document or information not specified in sub-rules (1), (2), (3) and (4) in support of the claim or for the purpose of satisfying himself about the gaminess and admissibility of the claim. 1.11.10 reFUnD Damn oF an investor (1) An investor, in addition to the documents specified in sub-rule (2) of rule 9, shall submit an undertaking on a non-judicial stamped paper that he shall commence production and supply of taxable goods within a period of two years of the receipt of refund. (2) If the investor fails to commence production and supply of taxable goods within the period specified in sub-rule (1) or within such further period as may be allowed by the Collector, the amount of sales tax refunded to him shall be recovered from him alongwith additional tax and penalty as provided in the Act. 1.11.11 reFUnD UnDer seCtion 66 A registered person who claims refund under section 66, in addition to the documents specified in sub-rule (3) of rule 9, shall file an application of refund indicating His name, his address and registration number Date of application Amount of sales tax refund claimed Reasons for seeking refund 1.11.12 ProFilinG oF exPorter For the PUrPose oF reFUnD (1) Each Collectorate shall develop profile of exporters categorizing them into Gold , Silver or Others' on the basis of the criteria specified in this rule. 15

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Taxation Management Explanation. For the purpose of this rule, exporter means manufacturer-cum-exporter and commercial exporter. (2) The exporters fulfilling the following conditions shall be rated as category Gold , namely For limited companies : a. Certified Books of Account for the last eighteen months b. Either certified accounts show amount of exports, domestic sales or a separate statement by the concerned Chartered Accountant firm regarding amounts of export or domestic sales c. Bank or bank's certificate for the last three years' export performance d. Six months accounts having been audited by Sales Tax department during last twelve months indicating at least ninety per cent claim acceptance level in terms of value e. Payment by crossed cheque encashable in any of the bank branches issuing the certificate in clause (c) Other than limited companies a. Export registration of throe years or more b. Bank certificate-confirming availability of loan credit limit equal to four times the value of an individual claim to be sanctioned c. Bank certificate for last three years' export performance; d. Six months accounts having been audited by Sales Tax department during the last twelve months indicating at least ninetyper cent claim acceptance level in termsof value e. Refund cheque shall be issued as encashable through bank branch issuing the certificate in clause (c) (3) The exporters fulfilling the following conditions shall be classified as category Silver , namely : a) New enterprises and new exporters having export registration of less than three years but with at least one year's valid registration b) Bank certificate for export performance since the date of export registration c) Verification by the Collectorate (through fax. E-mail, post, courier or in person) of bank certificate mentioned in clause (b) within the period of fifteen days Allama Iqbal Open University Islamabad 16

Taxation Management d) Six months accounts having been audited by Sales Tax department during the last twelve months indicating at least ninety per cent claim acceptance levied by value e) Bank certificate for loan limit indicating credit limit being not less than four times the amount of claim, which shall be verified, by the Collectorate, from the respective bank branch within the said period of fifteen cays. (4) The following class of exporters shall be treated as category Other. namely : a) Persons not falling under categories Gold and Silver b) Persons disqualified in category Gold or category Silver shall be down-graded to category tfc Other directly if their claim acceptance levels under audit are less than ninety per cent or forged or untrue documents an: submitted : c) Once an exporter is down-graded, he shall not be up-graded for at least eighteen months and will only be considered by the Collector for upgrading if he is satisfied that during the eighteen months down grading period. The exporter has met the requirements of respective category for continuous period of eighteen months d) Persons involved m a prosecution case of tax fraud under the Act or any other tax shall be rated in category Other even if they fulfil rating criteria for Gold Silver (5) The exporters falling under the category Gold shall be allowed refund within seventy-two working hours from the date of receipt of supportive documents it the refund is genuine and admissible on the basis of such documents. (6) Exporters falling under the category hi Silver shall be allowed refund within fifteen days of receipt of supportive documents if the refund is genuine and admissible on the basis of such documents. (7) The refund claims of exporters falling under category Other shall be sanctioned after through scrutiny and verification and refund shall be allowed within the time-limit specified in sub-section (2) of section 10 ofthe Act. (8) If person in a lower category 'improves whether on the basis of audit or or the basis of other prescribed criteria his category arting shall be upgraded accordingly, on the basis of a review by the Collector on six monthly basis on the recommendation& of a Review Committee comprising Allama Iqbal Open University Islamabad 17

Taxation Management representatives of the Export Promotion Bureau Collectorate of Sales Tax, Chamber of Commerce and Industry and exporter's respectiveassociation, if any, of which the exporter is a member. 1.11.13 misCellaneoUs (1) All such refund claims that have not been subjected to presanction scrutiny or verifications in terms of sub-rule (3) of rule 5 shall invariably be audited subsequent to payment by the Audit Division. (2) In cases where it has been found during post-payment audit that refund has been paid in excess of the claimant's entitlement excess paid amount shall be recovered alongwith additional tax and penalty as provided under the Act. (3) The refund claims of a registered person found indulged in tax fraud shall not be finalized before thorough pre-audit. (4) The refund claims shall be process d and finalized on first comefirst served ' basis 1.11.14 savinG The genuine and admissible refund claims sanctioned and paid in pursuance of Board's instructions contained is its letter C. No. 3 (39) STP/96, dated 21-10-1998 shall be deemed to have been validly sanctioned and under these rules.

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Taxation Management

Chapter 2 SALES TAX REFUND PROCEDURE FOR MOTOR VEHICLE DEAL

2.1 General sales tax reFUnD ProCeDUre in state oF miChiGan
To obtain timely refunds of the sales tax, dealers and manufacturers should claim a credit on their next filing of the Sales and Use Tax Worksheet. This worksheet can be found in the General and Line-by-Line Instructions for Sales Tax, Use Tax, Income Tax Withholding, and Single Business Tax Estimates booklet, form C-3091. The dealer or manufacturer must deduct the amount of the rescinded sale or improperly taxed sale on line "Other. Identify: _____" under ALLOWABLE DEDUCTIONS, in the Sales Tax column of the return worksheet. When deducting only a portion of the tax paid (because the tax was improperly calculated), multiply the amount of tax incorrectly charged by 16.667 to arrive at the amount to be entered in the Sales Tax column on line "Other. Identify: _____." (Multiply by 25, if the transaction was prior to May 1, 1994 and the applicable tax rate was four percent.) Do not include sales tax in the amount on this line unless it is also included on line "Tax included in gross sales" under ALLOWABLE DEDUCTIONS. The amount entered in the Sales Tax column on line "Other. Identify: _____" will reduce line "Taxable balance" on the worksheet by the amount of the deductions. This will reduce line "Gross tax due" in the Sales Tax column of the worksheet. This reduction may result in a negative sales tax liability. A negative sales tax liability should be used to reduce any "Gross tax due" in the Use Tax column(s), or any withholding due from line "Michigan income tax withheld" in the Withholding Tax section of the worksheet. Enter the net amount of tax due on the return. If a negative sales tax liability remains, do not enter a credit figure on the return itself as this may cause an assessment. If the credit is more than the tax due for the period, file a return indicating no tax due and carry the credit forward on the worksheet until the credit is depleted.

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Taxation Management A dealer who claims a sales tax refund under this procedure must retain all documentation regarding the credit for audit purposes, including proof that a full exchange, refund, or credit was given to the purchaser.

2.2 sales tax reFUnD ProCeDUre For manUFaCtUrer bUy-baCk law"

Manufacturers who file Michigan sales, use and withholding tax returns should refund to the consumer, and follow the general refund procedures described in this bulletin. Public Act 127 of 1994 requires that the manufacturer retain the following documentation for "lemon law" refunds including an allowable deduction for use: 1. An affidavit in the form of the sample appearing at the end of this bulletin; and 2. A copy of the consumer's written notification of the defect or condition to the manufacturer as required by the lemon law, MCL 257.251; MSA 9.1951. For transactions involving an out-of-state manufacturer who does not file Michigan sales, use, and withholding tax returns either the consumer or the manufacturer may request a refund of Michigan tax paid on the returned vehicle. To request a refund, the manufacturer or consumer must submit all of the following documents: (1) Copy of title application (forms RD-108 or TR-11C) of original purchaser showing validations as proof of Michigan tax paid. (2) Copy of the manufacturer's buy-back agreement or arbitration decision stating the buyback dollar figure given to the original purchaser. (3) Consumer's social security number, if the refund will be issued directly to the consumer. Note: A dealer is not a principal in "lemon law" buybacks. Therefore, dealers should not refund to consumers nor claim credits for "lemon law" buybacks on their sales, use, and withholding tax returns. 20

aGreements

UnDer

the

"lemon

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Taxation Management The manfacturer must retain an affidavit similar to the one on the following page to document each "lemon law" refund.

AFFIDAVIT TO BE COMPLETED WHEN CREDIT IS GRANTED OR REFUNDED FOR A RETURNED MOTOR VEHICLE UNDER ACT 87 OF THE PUBLIC ACTS OF 1986
The undersigned hereby certifies that they have accepted return of the following new motor vehicle,

_______________________, ________________________ from ________________________ Year, Make & Model V.I.N. Number Consumer's Name

and has replaced the motor vehicle or issued a refund on Date ______________ to the above named consumer in accordance with the provisions of Public Act 87 of 1986. Full Original Purchase Price Less: Allowance for Consumer's Use Less: Appraised Damage Not Attributable to Normal Use or to the Defect or Condition _______________ =============== ____________________________________ Manufacturer ____________________________________ _______________ Authorized Representative, Title Date _______________ _______________

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Taxation Management

Chapter 3 DATA COLLECTION

3.1 Data ColleCtion methoD
Most of the information is collected from secondary sources. Information required in writing this report is already available on internet and I have extracted it from different websites. I have also collected data from sources such as articles, journals, magazines, books and periodicals to obtain historical and other types of information. Some information is also collected from the primary source. I have taken lot of information about the company from its website.

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Taxation Management

Chapter 4 SWOT ANALYSIS

4.1 reCommenDations
Create taxpayer assistance units as a point of contact between the department and the taxpayers. Its functions should include: receipt of registration, de-registration and refund applications, issuance of registration certificates, notices and orders of the Sales Tax Act and any other acknowledgement for the tax payers, administer the voluntary disclosure process, provide tax payer education and training, and register tax payer complaints.

Create an exception based process of refunds using information on an exporters compliance history to ensure the access of compliant exporter to a fast track contingent on future compliance performance backed by a strong audit. As a medium term measure, introduce input tax verification scheme.

Develop support systems for audit, standardise audit work, develop well-defined work programmes and check lists for different types of audits. A risk-assessment instrument may be developed to systemise the steps to be taken during an audit in each risk area.

For large corporate taxpayers, develop system audits of their record keeping and accounting systems to evaluate its comprehensiveness, control procedures and transaction flow systems.

Revenue targets should be based on gross receipts. Upgrade the auditors by recruitment in Executive Group 1 and enact reward rules for auditors. Train auditors, both in-house and outsourcing with professional firms on regular bases. Discontinue the multiplicity of audit. A taxpayer should not be audited more than once a year. Retain outsourcing of audit keeping in view the revamping and transition cost of adopting a modernised audit system. Establish rigorous pre-qualification criteria as a key improvement in the system.

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Taxation Management As a part of the adjudication process reform, induce greater independence in adjudication, develop a sustained specialisation in the adjudication function, and improve the human capital
and physical infrastructure for adjudication. To reduce pressure on adjudication, short filing, late filing, and non filing should send directly to recovery. Introduce the concept of advance rulings by the CBR. Institute voluntary disclosure to encourage voluntary settlements by the taxpayer. Reform the recovery process to streamline the multifarious enforcement functions, efficient mechanism of charging of additional taxes, and provide a 30 days grace period prior to which recovery will not be initiated. Avoid introducing tax amnesty schemes. Re-design the return form to capture vital information on arrears and adjudication. Create a networked database on adjudication, arrears and recoveries to provide essential information for control purposes. Develop a procedure for return rectification in the event unwarranted errors are committed. Develop a semi-automated pilot programme for filing of returns and tax payments initially for large tax payers, which may be extended to other tax payers at a later stage. Implement NTN as a common tax number on a priority basis to harmonise documentary requirements and lower the manpower usage in registration across taxes. Reduce the existing exemption thresholds for registration. To facilitate the taxpayer stay of recovery should be allowed on submission of bank guarantee. Make a provision in the law, which allows for a transfer of jurisdiction in the event a taxpayer shifts location. Make the compulsory registration process more systematic. Create a centralised national database, which captures information from sales tax, income tax and customs, utility bills, PTCL, SECP, industrial associations, and state enterprises. The selection of cases to be registered should be automated to reduce discretion. A separate register should be maintained for the same. Undertake measures to lower the extent of non-filing. Remove the contaminated portion of the register, and maintain a separate register for effective monitoring. Remove the physical infrastructure constraints with great urgency. These include building space, basic amenities and record rooms. Improve the task of taxpayer education by publishing booklets and brochures explaining VAT principles, procedures and practices, and methods of record keeping. The information sharing

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Taxation Management
with taxpayers regarding the audit work programme would help. Arrange regular seminars with traders and industry associations. Keep CBR web site up to date with user friendly material. Reinforce business advisory committees at the Collectorates level.

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Chapter 5 CONCLUSION
A sales tax return is a form used by businesses to report sales tax collected and paid to the sales tax authority. The total amount owed to the government agency is calculated and submitted with the sales tax return. The calculations used differ according to the rules of the taxation agency. A sales tax is a flat percentage charged at the point of purchase. The rate charged is determined by the government responsible for that area. There are a wide range of government levels that can implement sales taxes, including city, state, or federal agencies. When a sales tax is implemented, the government agency responsible for the administration of the state tax creates the rules about what types of items are taxable. Point of sale systems are programmed to automatically calculate the tax on the appropriate items. The total value of the sales tax collected is entered on the sales tax return form. The vast majority of agencies that collect sales tax have rules for businesses. There are two options: credit for sales tax paid on the purchase of items or a sales tax exemption. The sales tax credit allows businesses to deduct the sales tax that they pay on supplies. On the sales tax return, there are three values: debit, credit and difference. The amount of the debit is the amount of sales tax the company paid for that period. The credit amount is the value of sales tax obtained from customers. The difference between the amount collected and the amount paid is the value that is remitted to the government agency. A sales tax exemption is a certificate issued to businesses that allows them to avoid paying the sales tax at the point of sale. This certificate must be presented at every purchase. A sales tax return is only required from registered businesses in certain industries. The exact rules vary by location, but typically apply to firms that sell directly to an end consumer. Distributors are typically exempt, as they do not product anything new. In order to submit a sales tax return, the government agency will provide the business with a sales tax or business number and forms with the business number preprinted. On the sales tax 26

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Taxation Management return remittance form, the reporting period is provided. Calculate the total amount of sales tax collected during this period, using the information from the point of sale system. Confirm the value of eligible sales tax paid during the period from the business accounting system. Enter this value on the sales tax return form. If the amount received is greater than the amount paid, issue a check for the different.

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Chapter 6 References
Pakistans Taxation System: A Critical Appraisal Journal of Managerial Sciences; Volume II, Number 1 GOVERNMENT OF PAKISTAN, CENTRAL BOARD OF REVENUENOTIFICATION; PART 11Statutory Notifications (S. R. 0.) SALES TAX; Islamabad, the 20th June , 2000 Sales Tax Special Procedures Rules, 2007; Mr. Hamid Hussain Joint Director, Sales Tax & Federal Excise Wing Federal Board of Revenue http://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/st/how_to_apply_for_a_refund_of_sal es_and_use_tax.htm http://www.wisegeek.com/what-is-a-sales-tax-return.htm http://www.ct.gov/drs/cwp/view.asp?a=1511&q=267332 http://www.pakcustoms.org/sales_tax_guide/index.htm

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