PkRevenue.com — The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has called for the revocation of Section 8B of the Sales Tax Act, 1990 in the forthcoming budget for the fiscal year 2024-25.
The FPCCI’s proposals argue that the current provisions of Section 8B significantly disrupt the financial operations of importers-cum-manufacturers, leading to increased financial costs and higher prices for consumers.
Section 8B of the Sales Tax Act restricts the adjustment of input tax to 90% of the output tax for a given tax period. Originally intended to prevent registered entities from declaring minimal value-addition and claiming excessive tax adjustments, this restriction has, according to the FPCCI, created severe cash flow challenges. The constraint forces businesses to manage increased financial burdens, ultimately escalating the prices of end products for consumers.
In its detailed submission, the FPCCI highlighted several inconsistencies between the legal provisions and the practical implementation of the law through the Federal Board of Revenue’s (FBR) online tax return system, IRIS. Key issues identified include:
1. Fixed Assets and Capital Goods: While the law exempts fixed assets and capital goods from the 90% restriction on input tax adjustment, the IRIS software does not accommodate this exemption, enforcing the restriction even on these categories.
2. Carry-Forward Mechanism: Although Section 8B’s application is limited to the tax period in question, the software automatically carries forward the previous period’s tax credit and re-applies the 90% restriction, further complicating compliance and financial planning for businesses.
3. Audited Accounts: Section 8B allows for the adjustment of restricted input tax if a registered person submits a statement with annual audited accounts showing value addition below the prescribed limit. However, IRIS does not support this provision, making it difficult for businesses to benefit from this exception.
4. Refunds and Adjustments: The law provides for carrying forward excess input tax for adjustment or refund in subsequent periods, but the software fails to facilitate this process effectively. Moreover, the provision for refunding input tax exceeding output tax, as stated in Section 10 of the Act, is often not honored. Businesses face delays and complications in receiving due refunds, exacerbating cash flow issues.
The FPCCI also pointed out that tax officials demand default surcharges on short-paid amounts discovered during audits, without considering pending refunds owed to taxpayers. This situation forces businesses to incur additional costs through borrowed funds to cover these shortfalls, for which they must pay interest.
In light of these challenges, the FPCCI has proposed two primary solutions: the complete revocation of Section 8B, or an amendment allowing for 100% input tax adjustment or refund when excess input tax is justified by the taxpayer. Additionally, the FPCCI recommended that default surcharges should not be imposed on taxpayers with pending refund claims.
As the government prepares its budget for the upcoming fiscal year, the FPCCI’s recommendations aim to streamline tax processes, reduce financial burdens on businesses, and ultimately, stabilize consumer prices. The business community eagerly awaits the government’s response to these critical proposals, hoping for reforms that will enhance economic stability and growth.
