President Arif Alvi allows refunding 12pc excess sales tax to Suzuki consumers

ISLAMABAD: President Arif Alvi has upheld the order of the Federal Tax Ombudsman (FTO) to refund the amount of Sales Tax collected more than 12.5 per cent from the buyers of Suzuki vehicles.

“The President’s order will benefit consumers all over the country who paid excess amount of Sales Tax from buyers of Suzuki vehicles,” FTO Dr Asif Mahmood Jah said while addressing a news conference here on Tuesday. Flanked by FTO’s Advisors including Malik Tanveer former IRS officer, Dr Arsalan Subectagheen, and Tahira Sarwar former Customs officers on the occasion, the FTO said they disposed of 1806 complaints against the FBR from October 2021 to March 15, 2022.

When asked about actions taken against those who possessed off-shore assets but did not avail of tax amnesty, the FTO’s Advisor replied that they would authenticate and verify the facts and then the action could be initiated against owners of offshore assets holders. The systemic failure of the FBR needs to be checked at any cost. However, the FTO office cannot intervene in the matters of global tax jurisdictions where international taxation is involved. However, the FTO can make recommendations to the FBR in this regard.

The FTO stated that 24 complaints were filed against FBR and a vehicle company, in terms of Section 10(1) of the Federal Tax Ombudsman Ordinance, 2000 (FTO Ordinance) for charging Sales Tax @ 17% on purchase of vehicle 998 CC in August 2021 as against 12.5%, which was the actual rate at that time. In this way, the taxpayers were constrained to pay more than what was actually due. It had recommended collection of the sales tax over being legislated in the Finance Act 2021 and delay in setting the tax refund tantamount to maladministration. The President of Pakistan upheld the decision and rejected FBR’s pleas against the recommendation for refund.

Precisely, the complainants booked cars 998 CC, prior to June 2021 at 100% advance payment of Rs.2.145 million, with a tentative date of delivery after July 2021. Meanwhile, the rate of Sales Tax on such cars was revised downwards, from erstwhile 17% to 12.5% and the FED chargeable @ 2.5% was waived off altogether through the Finance Act, 2021 with effect from 01.07.2021. Further, the term “time of supply” defined in Section 2(44) of the Sales Tax Act, 1990 was also amended from “time of sale” to the “time of delivery”. The vehicles were delivered to the complainants, along with an invoice of Rs.2.069 million the new rate applicable after July 2021, and not the one, at the time of booking of the car in June 2021. However, the company charged Sales Tax on old rates rather than invoice date “the time of sale” and refused to refund the difference, hence depriving Middle-Income Complainants of the due effect of the reduced tax burden. The complainant contacted FBR as well, on its helpline through email dated 17.08.2021, requesting for refund of the differential amount of sales tax.

In response thereof, the FBR communicated through email dated 20.08.2021 that sales tax had been reduced to 12.5% on cars up to 1000cc. But the FBR did not resolve the issue by arranging for a refund of the differential amount of sales tax. The FBR admitted, “there was lack of clarity over the definition of “time of supply” at the time of booking of the vehicle in June 2021 and at its delivery in August 2021. As per the definition in June 2021, the relevant time for determining the rate of taxation was when payment was received by the supplier, wherein Sales Tax was @ 17% and FED @ 2.5%. However, both the definition and the applicable rates of taxes had been changed in the budget 2022-2023 and now “supply of goods, other than under hire purchase agreement, means the time at which the goods are delivered or made available to the recipient of the supply”. This despite the fact that amendment in the act was intended to favour the taxpayer's benefit was denied to the complaints. Federal Tax Ombudsman has issued instructions to all advisors to decide all similar cases according to a decision by the President of Pakistan and hopes that FBR would ensure prompt compliance of the Presidents directives, as the decision is of far reaching impact by providing relief to not only the complaints but many others who may not have so far opted such relief, FTO added.