KARACHI: The Federal Board of Revenue (FBR) has placed significant responsibility on both buyers and sellers in the supply chain for any instance where the payment of tax fails to be deposited into the national treasury.
According to the updated provisions of the Sales Tax Act, 1990, which were revised by the Finance Act, 2019, the FBR has clarified that both registered suppliers and recipients (buyers) of goods or services will be held jointly and severally liable for any tax that remains unpaid.
This is outlined in Section 8A of the Sales Tax Act, 1990, which specifically deals with the issue of unpaid taxes in the supply chain. Under this section, if a registered buyer receives taxable goods or services from another registered seller and has reason to suspect, or is aware, that the tax due on the supply has not been or will not be paid, both parties (the buyer and the seller) are equally liable for the payment of the unpaid tax. The burden of proving this liability rests with the tax authorities.
The law underscores that any transaction where the tax has not been paid into the national treasury by the respective seller will disqualify the buyer from receiving any tax credits. As per Section 8 of the Sales Tax Act, input tax cannot be reclaimed if it pertains to goods or services on which sales tax has not been deposited by the seller. This provision is especially important as it ensures that the sellers who do not fulfill their tax obligations are held accountable, and the buyers are equally responsible for ensuring tax compliance within the supply chain.
In cases where the buyer suspects that the seller has not paid the due tax, the FBR mandates that both the seller and the buyer must work together to rectify the situation. The FBR has also introduced provisions under which discrepancies in the supply chain, especially those related to tax payments, can lead to disqualification of the buyer from any input tax deductions. This means that a buyer who is unable to verify the legitimacy of a seller’s tax payment will not be able to claim tax credits on their purchases.
The updated law also restricts the ability of buyers to claim tax credits on purchases from unregistered persons. For a sale to be eligible for input tax credit, the sale invoices must contain the correct National Tax Number (NTN) or Computerized National Identity Card (CNIC) number of the recipient. This ensures that both buyers and sellers in the supply chain are compliant with tax regulations and that the FBR can effectively track tax liabilities.
The FBR has emphasized that these regulations are designed to ensure greater accountability and reduce the chances of tax evasion. By holding both buyers and sellers responsible for the payment of taxes, the FBR hopes to create a more transparent and efficient tax collection process. Additionally, buyers who fail to verify the payment of taxes by their sellers could face severe financial consequences, which include the inability to claim input tax credits or deductions.
Moreover, Section 8B of the Sales Tax Act outlines conditions under which a registered person may adjust or refund input tax. The FBR has stipulated that buyers and sellers must follow specific guidelines to ensure that they are not only compliant with tax laws but also entitled to any adjustments or refunds of tax where applicable.
In conclusion, the FBR has made it clear that both buyers and sellers must share responsibility for ensuring the payment of tax on every transaction. The failure to meet these obligations can lead to significant financial and legal repercussions for both parties. Buyers, sellers, and tax authorities must collaborate closely to uphold the integrity of the tax system and ensure that taxes are duly paid into the national treasury.