Section 153(a) and Part-II A of the 1st Schedule (Payment to traders and distributors)

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Karachi (PR): The FBR has not yet issued modalities for collection of income tax under section 153-A recently introduced by the FBR in Finance Bill 2012-2013, lamented M. Jawed Bilwani, Chairman, Pakistan Apparel Forum. Section 153-A requires all manufacturers to collect 0.5% income tax from sales made to their distributor and wholesaler. As the modalities and concept of 153-A are yet not clarified by the Board, as result of which from the reading of section 153-A different interpretations on its practical application arise such as:-

  • Generating challan in cases of persons without having required particulars
  • Time of payment for tax levied under section 153-A
  • Scope of tax on different classes of persons
  • Justification for scope of tax considering replacement of sales tax law with income tax Act.

Generating challan in cases of persons without having required particulars: The provision of tax was introduced to burden undocumented segment of the trade. The challan of income tax payment can only be generated upon furnishing NTN or CNIC, however as the unregistered persons did not provide their particulars to manufacturer, how is it expected that a manufacturer can make payment of tax or generated tax challan of such unregistered customers?

Bilwani suggested that FBR should introduce a FTN in all such cases where no particulars of buyers are available to enable manufacturers to generate the tax challan and enable payment of tax in government kitty.

Time and manner of tax payment under Section 153-A: It has not yet been officially clarified by the board whether the tax u/s 153-A is required to be paid at the time of sales or at the time of payment received from the customers? The bare reading of the law implies that 0.5% tax is required to be collected by the Manufacturers on sales to their distributors and wholesalers. The word collection under the law gives impression that tax is payable after collection, whereas at the same time word sales gives an impression for payment of tax at time of sales. The time and manner is therefore required to be clarified by the Board to avoid any ambiguity.

Scope of tax on different classes of person: The bare reading of the act simply requires all manufacturers to collect tax from their distributors, dealers and wholesalers. Now question arises whether the condition to collect tax restrict to the extent of buyers registered as wholesaler/dealer / distributor or it was extended to other segments, for instance the goods  supplied by manufacturer to another person who used the goods as Raw Material for further manufacturing activity would require to pay tax or not? On plain reading of the law it suggests that the persons registered as importer/exporter is not require to pay tax. Therefore this requires confirmation / clarification from the board.

In cases of persons having multiple activity as wholesaler/importer/exporters how will a manufacturer determine application of tax?

There appears no business categories of wholesaler/importer/exporter/manufacturer in the NTN, therefore how will manufacturer determine the category and justify application or exclusion of tax?

Justification for scope of tax considering replacement of Sales Tax Law with Income Tax ActThe tax u/s 153-A was introduced in place of sales tax notifications 821 and 191 pertaining to requirement of CNIC / NTN of sales to un-registered trade. The business community did not find the conditions practicable and upon their agitation the law was replaced with the concept to pay some amount of tax in cases of non furnishing of particulars to their customers. Accordingly section 153-A was introduced in Finance Bill 2012-13.

Now the question arises that if a person as

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distributor / wholesaler having proper particulars and registered within income tax or sales tax regime as a documented segment then why should they pay additional amount of 0.5% tax. The levy of tax was meant only to penalize undocumented segment of trade but unfortunately the Government while introducing replacement law forgot to exclude registered segment of trade as a result of which they are burdened with additional amount of tax without any justification. It therefore becomes imperative that the FBR revisits this law on this aspect as well.