Non-disclosure of NTN/CNIC number of unregistered buyers

ISLAMABAD: The Federal Board of Revenue’s (FBR) electronic system will not accept sales tax and federal excise returns from January 1, 2012 of all those registered manufacturers, importers and exporters who would not disclose their computerised national identity card (CNIC) number or national tax number (NTN) of their unregistered buyers.

Sources told Business Recorder here on Sunday that the system would automatically declare all such non-compliant registered persons as ‘inactive’, which would block their sales tax returns due to non-submission of the CNIC number or NTN of their unregistered buyers. The Federal Board of Revenue (FBR) will impose these restrictions over the non-compliant manufacturers, importers and exporters from January 1, 2012. Following introduction of the e-filing of returns for all sales tax registered persons, the FBR can easily declare non-compliant taxpayers as ‘inactive’ and subsequently sales tax returns could be blocked through the electronic system. The system can also declare the non-compliant manufacturers, importers and exporters as ‘defaulted’ as sales tax returns would not be accepted by the electronic system. From January 1, 2012, the facility given to the registered persons to show sales made to unregistered persons without submission of particulars would be ended under SRO821(I)/2011.

According to sources, the FBR had repeatedly relaxed implementation of SRO 821(I)/2011 to fulfill the demands of the business and trade community. The implementation of the said notification has been suspended till December 31, 2011. As a result of relaxation given by the Board, a number of people have started providing details of their unregistered buyers in the sales tax returns. With the passage of time, the tax department has been able to obtain identification of the unregistered buyers. The taxpayers have started to realise that it is necessary to provide details of the unregistered buyers to remain compliant and ensure tax adjustment facility for their registered buyers.

From January 2012, importers, exporters and manufacturers have to maintain the particulars of the buyers in the form of NTN/CNIC. It is also learnt that registered persons of the above category have started maintaining their records in this manner so that they should be able to show the compliance from January 2012. Keeping in view the fact the FBR has already introduced e-filing of returns for all sales tax registered persons and, with the help of this electronic filing system, the FBR can easily impose restrictions on electronic submission of returns till they provide the complete details prescribed by the Board. As a result of failure to provide particulars of the unregistered buyers, they would not be able to file the returns and consequently they may become non-active taxpayers. The major impact of non-active taxpayers would be on their buyers who cannot take input credit of the purchases made from such non-active taxpayers. Therefore, it is in their own interest to maintain proper records of all sales, whether made to registered persons or unregistered persons, for filing of their returns, sources said.

As a business practice, large majority of sales made by manufacturers, importers, and exporters is through the dealers and distributors who are otherwise required to be registered under the Sales Tax Act. The manufacturers have to provide the details of these registered dealers, etc, to remain compliant under the FBR system. As some of the manufacturers and importers have their retail outlets, they can continue to report their sales through the retail outlets as provided in the sales tax returns without providing the NTN/CNIC of the end consumers.

Sources said that it is obvious from the above stated facts that the NTN/CNIC to be provided by the manufacturers, importers and exporters is only in respect of their sales made to wholesalers, dealers and distributors and retailers. The non-compliant persons would be unable to file their sales tax returns as the system would automatically block their returns. Thus, the registered buyers would not be able to obtain input from these non-compliant taxpayers. Even registered buyers of manufacturers importers and exporters are compliant but they cannot be able to obtain input in case these manufacturers/importers etc were unable to provide particulars of their unregistered buyers. Thus, non-compliance of SRO 821(I)/2011 by the registered manufacturers/importers and exporters would also create problems for their compliant buyers in obtaining tax credit. The registered buyers would not be in a position to claim input tax credit due to ‘inactive’ status of their manufacturers.

Despite the fact that the registered buyers of the manufacturers etc are compliant they would not be able to claim input tax adjustment due to inactive status of their registered manufacturers, importers and exporters. This would be applicable in cases where registered manufacturers were unable to provide details of the CNIC/NTN of the un-registered buyers. In this way, the registered buyers would force their manufacturers, importers and exporters to become active/compliant taxpayer to enable them to claim input tax adjustment.

Over 90 percent of the supplies are being made by the manufacturers to the unregistered wholesalers, distributors and dealers of all essential commodities and items. These businessmen have to be registered with the sales tax department as they are directly obtaining supplies from the manufacturers, who are avoiding sharing of basic information with the tax department. The major documentation measure of the Board to obtain the CNIC/NTN from the unregistered buyers/sellers would bring these potential wholesalers, distributors and dealers within the documented regime as per current provisions of the law, sources added.