The Federal Board of Revenue (FBR) has provided a major relaxation to the manufacturers of the fertilizer sector by allowing input tax credit/adjustment on supplies (value exceeding the prescribed threshold of Rs. 100 million per fiscal year) made to the unregistered persons.
In this regard, the FBR has issued an S.R.O. 1337 (I)/2020 here on Wednesday.
Under the Sales Tax Act 1990, a registered person shall not be entitled to deduct input tax (credit adjustment or deduction of input tax) which is attributable to such taxable supplies exceeding, in aggregate, Rs. 100 million in a financial year or Rs. 10 million in a tax period as are made to a certain person who is not a registered person under this Act, it added.
Sources familiar with the matter told ProPakistani that in order to document big distributors, the FBR did not allow input tax adjustment to those manufacturers who will sell Rs. 10 million goods on a monthly basis to unregistered buyers. The objective of this amendment was to bring major distributors into the documented regime.
The big distributors who made purchases from Rs. 10 million on monthly basis to Rs 100 million on annual basis, those manufacturers would not be granted input adjustments if they would sell their products to unregistered persons.
Now, this condition has been relaxed for the manufacturers in the fertilizer industry through an S.R.O. 1337 (I)/2020 issued here on Wednesday. However, the manufacturers have to provide necessary information to the FBR for availing relaxation of the said provision of the law.
According to the notification, the manufacturers of fertilizers are required to provide the following documents and details to the Board on or before the 15th-day of January 2021:
- The complete list of the dealers or distributors of their products including details of business name, address and NTNs
- Complete list of buyers, other than dealers and distributors, including details of their names, residential addresses and CNICs
- Copies of relevant dealership or distribution agreements, as the case may be;
- Details of all business bank accounts of the dealers, distributors or buyers along-with names and addresses of the relevant bank branches;
- Dealer or distributor-wise figures of sales made by the registered persons during the period 01.07.2019 to 30.06.20 and 01.07.2020 till date;
- Any other document especially required by the Board for compulsory registration of dealers, distributors or buyers.
Failure to comply with any of the conditions specified in column (3) of the said table by the due date shall disentitle the registered person for the waiver being granted under this Notification and all provisions ofAct shall apply accordingly, added the notification.
This notification shall take effect from the 1st day of July 2020.
A leading Karachi-based sales tax expert told ProPakistani that the FBR had issued a clarification in respect of restriction of supplies to an unregistered person recently brought through amendment under section 73(4) of the Sales Tax Act, 1990.
According to the clarification, the threshold limit of Rs. 10 million per month and Rs. 100 million per year of supplies to an unregistered person was applicable to one person and persons not liable to register such as federal/provincial/local government, departments, etc, not engaged in taxable supplies, foreign missions, diplomats and privilege persons and all other persons not engaged in the supply of taxable goods are excluded from the purview of this restriction.
The tax expert highlighted
The federal government recently brought an amendment in section 73 of the Sales Tax Act 1990. By virtue of the amended provision of the sales tax law, a registered manufacturer cannot make supplies to the unregistered person beyond the prescribed limit of Rs. 10 million per month or Rs .100 million per year and in case of non-compliance, the correspondence amount of input tax is not admissible to the extent of such excessive value of supplies to an unregistered person.