Sales Tax Instructions

Sales Tax Instructions, 2009
For example ―A‖ is a registered manufacturer in Lahore; it sells goods to a distributors /
wholesaler ―B‖ in Faisalabad, who in turn, sells goods to another wholesaler ―C‖ in Faisalabad
and this wholesaler sells it to an exporter ―D‖ all on paper without any physical transfer of
goods.
In this event monthly returns are filed by ―A‖, ―B‖, ―C‖ and ―D‖ regularly and either input tax
is shown more than output tax or very meager amount of sales tax is deposited. Verification of
such invoices is done by the Collectorate, as a routine, on the basis of entry in sales register and
reflection of the aggregate amount as output tax in monthly return-cum-payment challan. Such
chain is usually detected accidentally or on specific information. Normally it cannot be detected
unless verification of transactions of persons ―A‖ to ―D‖ is not done.
C. ITEMS PRONE TO FLYING INVOICES
Yarn, fabrics, processing, packing material, dyes & chemicals, machinery parts and furnace oil
are prone to flying invoices as number of registered persons dealing in these goods is too little to
cater the need of organized / registered sector.
D. QUANTUM OF FLYING INVOICES
According to a conservative estimate approximately 40% of the refund claims filed by the
exporters are based on flying invoices. Along with exporters, registered manufacturers making
local supplies also use flying invoices of machinery parts, furnace oil, dyes and chemicals etc. to
inflate their input adjustment and consequently to pay less sales tax in Govt. exchequer.
E. REASONS FOR ISSUING/USING FLYING INVOICES
(i)
(ii)
(iii)
(iv)
(v)
(vi)
The main and major reason is that a large part of trade is still running in
unregistered/undocumented regime. The goods purchased form this sector, for
export, need flying invoices for claiming refund and to substantiate production.
The grace period to file sales tax returns i.e. upto 15 th of following months gives
ample time to unscruplous traders for maneuvering flying invoices.
The facility to claim refund on stocks also encourages exporters to buy flying
invoices for getting enormous amount of sales tax refund even before actually
exporting the goods. In such case goods are not physically transferred to the
exporters.
If there is opportunity to buy non sales tax paid goods both from the registered and
un-registered sector and availability of flying invoices is also there (through
payment of much less amount), then, there always remain appetite for making more
profit.
The condition of same-state-goods is envisaged under SRO 417(I)/2000, dated
20.06.2000 has catapulted the phenomenon of flying invoices as the exporters are
now bound to produce sales tax invoice of each manufacturing stage in support of
their sales tax refund claim. Earlier, the exporters were entitled to get refund of
input tax on production of invoice only of yarn and by exporting fabrics/made-up as
the invoices of intermediary stages of manufacture like processing, weaving,
stitching and knitting etc were not required.
Except audit, there exists no check/system for verification of the correctness of input
adjustment as a result of which the flying invoices of excessive input materials are
preferred in a bid to pay lesser amount of output tax, particularly in case of local
supply.