The tax authority has amended its sales tax refund mechanism to allow eligible leather manufacturers to claim refunds on qualifying HS Code 3909 inputs.
ISLAMABAD, September 29, 2026: The Federal Board of Revenue (FBR) has amended its sales tax refund mechanism for five export-oriented sectors, allowing the use of HS Code 3909 materials in refund claims relating to leather goods.
The FBR issued Sales Tax General Order (STGO) No. 24 of 2026 (IR Operations), partially modifying STGO No. 09 of 2023 dated March 15, 2023.
Under the latest order, the FBR has removed HS Code 3909 — amino-resins, phenolic resins and polyurethanes in primary forms — from the negative list attached to the earlier STGO.
According to the FBR, these materials form an integral part of the raw materials used in the manufacture of leather goods.
The amendment has taken effect immediately.
Five export-oriented sectors covered
The refund framework applies to manufacturers operating in five export-oriented sectors:
• Textile
• Carpet
• Leather
• Surgical goods
• Sports goods
Under the original STGO issued in 2023, the FBR introduced automated checks and benchmarks for processing sales tax refunds claimed by manufacturers and exporters in these sectors.
The latest amendment provides relief specifically for HS Code 3909, removing the relevant materials from the category of inputs treated as unrelated or inadmissible for automated refund processing.
FBR introduced tighter refund controls in 2023
STGO No. 09 of 2023 was issued following the abolition of the zero-rating regime under SRO 1125(I)/2011.
With purchases in the textile and other export-oriented sectors becoming subject to sales tax, input tax embedded in goods subsequently exported or supplied at zero-rated rates became refundable to eligible exporters.
To address exporters’ cash-flow requirements, the FBR introduced the automated Sales Tax e-Refund System (FASTER) to accelerate the processing and sanctioning of refund claims.
However, the board said the automated mechanism had faced operational deficiencies, particularly in determining whether the quantity and quality of inputs claimed by taxpayers were admissible for refund.
According to the FBR, these shortcomings could result in refunds being allowed for excess consumption or otherwise inadmissible inputs, creating uncertainty for exporters and liquidity pressures for businesses while also affecting tax administration.
Input-output benchmarks incorporated into FASTER
To improve transparency and accuracy, the FBR subsequently incorporated benchmarks and input-output ratios into FASTER following consultations with Customs authorities, export associations, sector representatives, consultants and Inland Revenue officials.
The 2023 framework introduced a 15 per cent value-addition check for exports and local supplies for filing Annex-H for the relevant tax period.
It also stipulated that the total refund paid against claims processed through the system could not exceed the lower of the actual input tax consumed in exported or zero-rated goods and 12 per cent of exports.
Inputs rendered inadmissible under Section 8 of the Sales Tax Act, 1990 were also excluded from automated refunds.
Similarly, input tax adjustment was restricted for goods unrelated to a manufacturer’s business, with such items placed on a negative list.
Additional risk checks remain in place
The FASTER system also incorporates various risk parameters to identify potentially problematic refund claims.
These include deferring proportionate input tax refunds against export goods declarations under objection and cross-checking export GD dates against purchase invoice dates.
The system also ensures that the combined amount of refund sanctioned and deferred does not exceed the total amount claimed.
Refund claims submitted by newly registered exporters during their first 12 months are excluded from FASTER and are instead processed through the STARR/ERS mechanism.
Claims removed from FASTER cannot subsequently be returned to the automated system and must be processed through STARR/ERS.
For commercial exporters, refund payments are linked to the realisation of export proceeds, while refunds relating to fixed assets are processed only after field formations verify their installation and utilisation.
The framework also requires utility expenses to be apportioned according to consumption between zero-rated supplies and domestic sales.
FBR retains power to modify refund conditions
The original order allows the FBR to add, remove or modify annexures, conditions and benchmarks whenever considered necessary, based on recommendations from field formations responsible for the relevant export-oriented sectors.
The latest STGO No. 24 of 2026 therefore represents a targeted amendment to the existing refund framework, specifically addressing the treatment of HS Code 3909 materials used in leather manufacturing.
The amendment takes effect immediately and is intended to ensure that qualifying inputs integral to leather goods production are not excluded from the sales tax refund mechanism solely because of their previous placement on the negative list.