Updated law outlines repayment of sales tax on production inputs and zero-rated supplies in Azad Jammu and Kashmir

ISLAMABAD: The Federal Board of Revenue (FBR) has clarified the provisions governing the repayment of sales tax in certain cases for the fiscal year 2026-27 (FY27) under the Sales Tax Act, 1990, updated up to June 30, 2026.

According to the updated law, the FBR has the authority to authorise the repayment of sales tax paid on specified goods used in manufacturing, processing, repair or refitting activities in Pakistan, subject to prescribed conditions, limitations and restrictions.

Repayment of tax on production inputs

Under the provision titled “Repayment of tax in certain cases,” the Board may authorise the repayment, either in full or in part, of sales tax paid on goods of a class or description specified by the FBR.

The law provides that the goods must have been used in the production, manufacture, processing, repair or refitting of other goods in Pakistan that are also specified by the Board.

However, such repayments remain subject to conditions, limitations and restrictions imposed by the FBR to ensure compliance with the applicable sales tax framework.

Repayment for zero-rated supplies in AJK

The updated legislation also includes a separate provision for taxpayers registered in Azad Jammu and Kashmir (AJK).

Under the law, the FBR may authorise the repayment, wholly or partly, of input tax paid on goods acquired within Pakistan or imported into the country by persons registered in AJK.

The repayment facility is available to registered persons engaged in making zero-rated supplies, provided they satisfy all conditions, limitations and restrictions prescribed by the Board.

Legal framework for FY27

The FBR said these provisions form part of the Sales Tax Act, 1990, as amended up to June 30, 2026, and establish the legal framework governing the repayment of sales tax to eligible businesses and taxpayers during FY27.

The clarification is intended to provide certainty to manufacturers, processors and exporters regarding the circumstances under which sales tax paid on eligible goods may be repaid, while ensuring that repayments are made in accordance with the requirements laid down under the updated law.