The Federal Board of Revenue (FBR) has stirred controversy with its recent decision to suspend credit notes against supplies made to unregistered persons, a move that has drawn strong protests from the Karachi Tax Bar Association (KTBA).
The tax bar has voiced its concerns over the unilateral suspension of credit and debit notes, emphasizing that it contradicts legal provisions within the sales tax laws.
In a letter addressed to the Chairman of the Federal Board of Revenue, the KTBA highlighted a dilemma arising in the sales tax return from July 2021. The issue revolves around the suspension of adjustments to output tax resulting from the return of goods or cancellation of supplies made to unregistered persons, a practice that was permissible under Annexure – I of the Sales Tax Return until the tax period ending June 2021.
KTBA President Muhammad Zeeshan Merchant expressed dismay over the abrupt suspension, emphasizing that no amendments to the Sales Tax Act, 1990, or the associated rules have been introduced in the post-June 2021 scenario. Previously, businesses could adjust output tax through credit and debit notes, but the recent changes in the sales tax return now disallow such adjustments in cases involving unregistered persons, with the system prompting users to enter a “valid invoice.”
Merchant raised concerns about the lack of clarity surrounding this development, pointing out that the FBR support team, in response to queries from taxpayers, stated via email, “As per instructions of the FBR, credit/debit note is not allowed against unregistered sales/purchase.”
The tax bar emphasized that such arbitrary steps are particularly concerning, especially as the tax return process is transitioning towards a single portal, or one window. Members of the KTBA expressed hope that the adjustment of output tax resulting from the cancellation of supplies to unregistered persons would be reinstated under Annexure – I of the Sales Tax Return, aligning with the prescribed Act and Rules.
This controversy highlights the challenges faced by businesses and tax practitioners in adapting to changes in tax regulations and procedures. The KTBA’s call for a reconsideration of the suspension underscores the importance of clear communication and adherence to established legal provisions to ensure a smooth and transparent taxation process. The FBR is expected to address these concerns and engage with stakeholders to find an equitable resolution.
