Karachi, December 7, 2023 – The Government of Pakistan has made it compulsory to conduct sales tax transactions exceeding Rs 50,000 through banking channels.
This initiative, outlined in the updated Sales Tax Act, 1990 for the tax year 2024, was recently announced by the Federal Board of Revenue (FBR).
The amendment, detailed in Section 73 of the Sales Tax Act, 1990, specifies the conditions and procedures for transactions falling under this requirement. The key provisions of the amendment are as follows:
(1) Admissible Transactions:
According to Section 73(1), transactions exceeding the value of fifty thousand rupees, excluding payments for utility bills, must be made using a crossed cheque drawn on a bank, a crossed bank draft, crossed pay order, or any other crossed banking instrument that reflects the transfer of the amount specified in the sales tax invoice. Additionally, online transfers from the buyer’s business account to the supplier’s business account and credit card payments are acceptable, provided they are verifiable through bank statements.
Further conditions for adjustments are outlined in the provisos:
(a) Both parties must have charged and paid sales tax under the relevant provisions of the Sales Tax Act and its prescribed rules.
(b) The registered person must obtain prior approval from the Commissioner before making such adjustments.
(2) Consequences for Non-Compliance:
The amendment makes it clear that if payment for a transaction is not made in the prescribed manner, the buyer will not be entitled to claim input tax credit, adjustment, deduction, refund, repayment, or zero-rating of tax under the Sales Tax Act. However, in the case of credit transactions, the payment must be transferred within one hundred and eighty days of the tax invoice issuance.
(3) Deposit in Business Bank Account:
The amount transferred in accordance with Section 73 shall be deposited in the business bank account of the supplier. Failure to comply with this requirement will result in the supplier being ineligible to claim input tax credit, adjustment, deduction, refund, repayment, or zero-rating of tax under the Sales Tax Act.
Explanation:
For the purpose of this section, the term “business bank account” is defined as a bank account utilized by the registered person for business transactions, declared to the Commissioner through Form STR-1 or a change of particulars in the registration database.
(4) Limitations on Input Tax Deductions:
Section 73(4) places limitations on input tax deductions for taxable supplies exceeding one hundred million rupees in a financial year or ten million rupees in a tax period. This restriction does not apply to supplies made to specific entities, including government departments, foreign missions, diplomats, and individuals not engaged in the supply of taxable goods, among others.
The government aims to curb the use of cash transactions in large-scale sales tax dealings, fostering a more accountable and transparent financial environment. The FBR encourages businesses and taxpayers to familiarize themselves with the updated regulations to ensure compliance and avoid potential penalties.
