Karachi, December 26, 2024 – The Federal Board of Revenue (FBR) has authorized refunds of input tax under Section 10 of the Sales Tax Act, 1990, bringing relief to registered persons who face an excess of input tax over output tax during a tax period. This provision, as clarified by the FBR, aims to streamline the refund process and ensure smoother tax compliance for businesses.
According to Section 10 of the Sales Tax Act, if the input tax paid by a registered person on taxable purchases exceeds the output tax on zero-rated local supplies or exports during a specific tax period, the registered person is entitled to a refund of the excess input tax. The FBR mandates that the refund must be processed within forty-five days from the submission of the refund claim. However, the refund procedure is subject to specific conditions that the FBR may prescribe through an official notification in the Gazette.
In cases where the input tax exceeds the output tax for supplies other than zero-rated or exports, the excess input tax may not be refunded immediately. Instead, the registered person can carry forward the excess input tax to the next tax period. This carried-forward input tax will be treated as input tax for the following period, alongside any input tax that remains unadjusted as per Section 8B. The FBR may also set out procedures for claiming refunds of such excess input tax through notifications.
Additionally, the FBR has the discretion to direct that refunds of input tax related to exports will be paid at fixed rates and according to specified methods, as determined in an official notification. This ensures clarity for exporters regarding how to process input tax refunds for export transactions.
However, the FBR also stipulates certain conditions that can affect the refund process. For instance, if a registered person has outstanding tax liabilities, including default surcharges or penalties, these amounts will be deducted from any input tax refund. The refund of input tax will only be made after the adjustment of such liabilities, ensuring that the registered person settles any unpaid dues.
To safeguard against fraudulent claims, the FBR has outlined a strict procedure for investigating refunds of input tax. If there is reason to believe that a person has claimed input tax credit or a refund that was not admissible, the FBR is required to complete the inquiry, audit, or investigation within sixty days. In complex cases, this period may be extended up to one hundred and twenty days by an officer not below the rank of Additional Commissioner Inland Revenue. Furthermore, the FBR may extend this period for up to nine months in exceptional cases, provided that the extension is justified in writing.
Through these measures, the FBR aims to create a transparent and efficient process for the refund of input tax, ensuring that businesses receive their due refunds while maintaining compliance with the law.