Karachi, December 23, 2024 – The Federal Board of Revenue (FBR) has clarified that tax credit will not be allowed on supplies of certain goods, following the stipulations set under Section 8 of the Sales Tax Act, 1990. This new directive is part of the government’s effort to regulate the input tax credit system and ensure that only eligible businesses benefit from tax credits.
Under Section 8, which outlines the restrictions on tax credits, registered persons are prohibited from reclaiming or deducting input tax on certain goods or services. Specifically, the FBR has outlined several categories where tax credit cannot be claimed. These include goods or services used for purposes other than taxable supplies, goods for personal or non-business consumption, and those used in building or construction, such as paints, pipes, and electrical fittings. However, goods acquired for resale or direct use in the production of taxable goods are exceptions.
Additionally, the tax credit will not be allowed for goods and services for which sales tax has not been deposited by the supplier in the government treasury, as well as for purchases where discrepancies are found through CREST or the supply chain input tax is unverifiable. The FBR also prohibits claims on fake invoices, and purchases from suppliers failing to provide required information through notifications.
Furthermore, registered persons are restricted from claiming input tax on goods and services related to non-taxable supplies, including vehicles and their parts, office equipment (excluding electronic cash registers), and agricultural machinery subject to a 7% sales tax under the Eighth Schedule of the Act. The FBR also announced that from a specified date, input tax credits will not be allowed if the supplier has not declared the goods in his return or has failed to pay the due tax.
For businesses dealing in both taxable and non-taxable supplies, only the portion of input tax attributable to taxable supplies may be claimed. This proportion must be determined according to the FBR’s guidelines. Moreover, businesses dealing with unregistered distributors are restricted from claiming input tax on supplies unless the sale invoices include the recipient’s NIC or NTN number, as mandated under Section 23 of the Act.
In conclusion, the FBR’s notification aims to tighten the regulations around tax credit claims to prevent misuse of the system and ensure compliance with tax laws. Registered businesses must be diligent in adhering to these provisions to avoid penalties or denial of input tax credit claims.