PkRevenue.com – The Karachi Tax Bar Association (KTBA) has voiced serious concerns over the Federal Board of Revenue’s (FBR) recent decision to prevent taxpayers from claiming input tax paid to the Sindh Revenue Board (SRB).
This decision has created significant challenges for taxpayers, according to KTBA President Syed Zafar Ahmed.
In a detailed letter to Mir Badshah Khan Wazir, Member-IR (Operations) at FBR, Ahmed highlighted the complexities and issues resulting from this decision. The KTBA emphasized that provincial laws mandate resident service recipients to charge and deposit provincial sales tax on taxable services imported from non-resident providers. This process, known as the Reverse Charge Mechanism (RCM), obligates resident recipients to handle tax payments on behalf of non-residents.
According to SRB’s Circular No. 06 of 2020, dated July 10, 2020, registered service recipients are explicitly allowed to claim this input tax. The procedure for declaring and paying Sindh Sales Tax (SST) against their National Tax Number (NTN) is detailed in Annex-C of the SST return, and subsequently, claiming the input tax in Annex-A is facilitated either with SRB or FBR.
KTBA underscored that the Sales Tax Act, 1990, under sections 2(14) and 2(22A) and SRO 814 of 2016 dated September 2, 2016, allows for the adjustment of input tax paid under provincial sales tax laws. Historically, the FBR portal has supported such claims, permitting taxpayers to adjust input tax paid to provincial tax authorities under RCM. Appellate forums have consistently upheld that input tax paid under RCM is a legitimate adjustment under the Act.
However, a significant issue surfaced in March 2024. Amendments to the Sales Tax Rules, 2006, through SRO 350 of 2024, have resulted in the FBR portal no longer reflecting input tax paid under RCM, thereby jeopardizing taxpayers’ ability to claim these inputs. KTBA sought clarification from the FBR helpline but was informed that “self-sale invoicing shall not be available” for adjustment moving forward. KTBA President Syed Zafar Ahmed argued that this response demonstrated a profound misunderstanding of the regulations.
KTBA clarified that the issue is not related to self-sale invoicing, which pertains to in-house consumption of finished goods or supply of samples. Instead, it concerns the import of services from non-resident providers, where tax payment is managed under RCM. This process is well-established and supported by the SRB Circular. Tax payments for services from non-resident providers cannot be misconstrued as self-sales since they inherently involve a second party.
KTBA has urged FBR Member Mir Badshah Khan Wazir to intervene and resolve the situation promptly. The association stressed the need for immediate action to rectify the issue, which has arisen due to a lack of understanding of the subject matter. Such intervention would enable taxpayers to reclaim their legitimate input taxes and ensure compliance with established procedures.
The KTBA’s concerns highlight the broader implications of the FBR’s decision on businesses operating in Sindh, emphasizing the need for coherent tax policies that support rather than hinder compliance and economic activity. The association remains hopeful that the FBR will address this issue swiftly to mitigate any further disruption to taxpayers’ operations.
