July 23, 2006	Sunday	Jumadi-ul-Sani 26, 1427

KARACHI, July 22: In order to check tax frauds, the Central Board of Revenue has decided to cancel sales tax registration of about 1,000 firms that have not filed tax returns for the last six months in a row.

CBR sources said on Saturday that notices had been issued to these firms, asking them to explain reasons for non-filing of sales tax returns.

According to the rules, a firm would be required to respond to the notice in person or in writing within 15 days. If it fails to respond, the department would cancel their sales tax registration.

The sources maintained that more such firms that had not been filing returns would be identified through scrutiny of records and would be proceeded against.

The step has been taken to prevent these firms, which apparently seem to be out of business, from issuing sales tax invoices that can be misused for claiming refunds.

The action is in line with rule 11, sub rule 4, chapter 1 of the Sales Tax Rules 2006, which stipulates that the sales tax registration of firms not filing sales tax return for over six months will be cancelled.

The CBR in the past suffered from massive leakage of revenue through sales tax refunds obtained by textile exporters mainly through fake or spurious invoices. Prior to the zero rating of four value-added export sectors, including textile, last year, obtaining sales tax refunds through spurious invoices became a lucrative business involving millions of rupees.

Consequently, a number of firms were established only to issue fake sales tax invoices on handsome fee to the textile exporters who obtained fraudulent refunds without making any shipment.

Meanwhile, the procedure for sales tax registration has been simplified in the new budget and businesses having annual turnover of over Rs5 million have been allowed to file registration application with the sales tax department in their cities. Earlier, all ST registration applications were required to be sent to the central registration office in Islamabad.

The CBR has also introduced a system of verification of business premises of the firms applying for registration. The applications are filtered through a risk profile system and those falling in Green zone are issued a registration certificate immediately. Verification orders are issued on applications falling under the Red channel.

Meanwhile, an officer of the rank of assistant/deputy collector accompanies the team of inspectors sent for verification of business premises of the applicant. Earlier, reports made by inspectors were found to be wrong and were suspected of corrupt dealing between the staff and the applicant.