Karachi, December 21, 2023 – The Federal Board of Revenue (FBR) has introduced a requirement for foreign diplomats in Pakistan to obtain explicit permission for zero-rating of sales tax supplies.
This measure, outlined in the updated Sales Tax Rules, 2006 for Tax Year 2024, aims to streamline and regulate zero-rated transactions involving diplomats. The focal point of this regulation is encapsulated in Rule 52 of the updated rules.
Rule 52 – Supplies to Diplomat and Diplomatic Missions:
Application for Permission:
Diplomats or diplomatic missions intending to avail themselves of a zero-rated supply from a registered person must formally apply for permission. This application should be submitted to the Assistant Collector or Deputy Collector with jurisdiction. Additionally, the diplomat is required to provide the original exemption certificate issued by the Ministry of Foreign Affairs for this purpose.
Basis for Issuing Exemption Certificates:
The Ministry of Foreign Affairs will issue exemption certificates based on the principles of reciprocity and a minimum purchase value of ten thousand rupees or more. Notably, if a diplomat or diplomatic mission has already paid sales tax, the Ministry of Foreign Affairs will forward the refund claims meeting the specified conditions to the Board.
Authorization Process:
Upon receipt of the application and necessary documents, the Assistant Collector or Deputy Collector will record the details of the goods being purchased by the diplomat on the original exemption certificate. Subsequently, an “Authorization for Zero-Rated Supplies” will be issued in the form specified in STR-12 of these rules, in the name of the registered person.
Record Keeping Responsibilities:
The registered person receiving the authorization is then obligated to make the zero-rated supply and maintain detailed records of the transaction. These records are to be made available to the sales tax department upon request.
This regulatory update reflects the FBR’s commitment to ensuring transparency and accountability in tax-related transactions involving foreign diplomats. By establishing a formalized process for obtaining permission and issuing exemption certificates, the FBR aims to create a more structured framework for zero-rated supplies, facilitating both the diplomats and the tax authorities.
The move has been welcomed by experts in international relations and taxation, who believe that such regulations contribute to a more orderly and compliant business environment. It is anticipated that these measures will streamline processes, reduce potential discrepancies, and foster positive relations between the diplomatic community and tax authorities in Pakistan.
