The Federal Board of Revenue (FBR) has introduced updated guidelines for determining sales tax liability for the fiscal year 2025–26.
These updates are part of the latest amendments to the Sales Tax Act, 1990, as revised through the Finance Act, 2025.
Under Section 7 of the Act, the framework for calculating a registered person’s tax liability has been outlined to ensure compliance and transparency. The procedure primarily focuses on offsetting input tax against output tax while observing necessary documentation and regulatory requirements.
Key Provisions Under Section 7
According to the revised Act, a registered person can deduct input tax paid or payable during a tax period for taxable supplies from the output tax due for the same period. This allows businesses to adjust their liability effectively, ensuring only the net amount of sales tax is payable to the FBR.
However, the Act also specifies that such deductions are permissible only if proper documentation is maintained. For example, a valid tax invoice bearing the registrant’s name and number is mandatory for supplies. Similarly, for imported goods, a bill of entry or goods declaration, properly cleared by customs, is required. For auction purchases, a treasury challan indicating payment of sales tax is necessary.
Special Provisions and Adjustments
The law allows adjustments within six subsequent tax periods if input tax was not initially deducted in the relevant return. Moreover, the FBR, with the approval of the Federal Minister-in-charge, may issue special orders permitting deductions under specific conditions or limitations.
The Federal Government also retains the authority to issue notifications through the official Gazette, enabling certain registered persons or classes of persons to claim input tax deductions in a manner defined by such notifications. Additionally, restrictions may be imposed on wastage of materials where input tax is claimed, ensuring accountability in high-risk industries.
Importance for Businesses
For businesses operating in Pakistan, correctly determining sales tax liability is crucial for avoiding penalties and ensuring smooth operations. The updated law emphasizes documentation, compliance, and accurate reporting of taxable supplies. With the Finance Act, 2025 introducing stricter compliance measures, companies are urged to align their tax practices accordingly.
Disclaimer:
This article is for informational purposes only and does not constitute legal or financial advice. Readers are advised to consult a qualified tax professional or the Federal Board of Revenue (FBR) for guidance on specific sales tax matters and compliance requirements for the fiscal year 2025–26.