Karachi, June 15, 2025 – The Federal Board of Revenue (FBR) has been granted enhanced powers to deny or restrict input tax adjustment under the Finance Bill, 2025.
This marks a significant policy move aimed at curbing fraudulent or excessive input tax claims in the sales tax regime.
Under the existing law, particularly sub-section (4) of Section 8B of the Sales Tax Act, 1990, the FBR already holds the authority to impose restrictions on input tax adjustment for any person or class of persons. However, the Finance Bill, 2025 proposes a critical amendment that would authorize the FBR to apply automated, risk-based systems to determine whether a taxpayer’s input tax adjustment should be allowed, restricted, or denied altogether.
This proposed amendment strengthens the FBR’s capacity to identify high-risk input tax claims, ensuring better compliance and minimizing fraud. By leveraging technology, the FBR aims to streamline tax enforcement and reduce human intervention, which has often been a source of delay and inefficiency.
According to the bill, if a taxpayer’s input tax adjustment is deferred or limited by the system, the affected party has the right to contest the decision. They may file an application along with the necessary supporting documents to the Commissioner Inland Revenue. The Commissioner is required to decide the matter within 30 days of receiving the application.
However, the proposed law does not specify a time limit within which the taxpayer must submit the application to challenge the FBR’s action, leaving an important procedural gap. This lack of clarity could lead to administrative ambiguities and possible legal challenges.
The term input tax adjustment appears at the core of this legislative development, as the FBR strengthens its oversight over such claims. Tax professionals have raised concerns about potential misuse or overreach, but the FBR argues that the reform is necessary to ensure that only genuine input tax claims are honored.
The introduction of risk-based input tax controls reflects the FBR’s ongoing efforts to digitize tax enforcement and reduce revenue leakages, reinforcing its strategic role in Pakistan’s fiscal policy.