Karachi, October 25, 2023 – The Karachi Tax Bar Association (KTBA) has raised a red flag concerning the misalignment of debt and credit notes within the framework of tax regulations.
In a letter addressed to the Chairman of the Federal Board of Revenue (FBR), the KTBA has pinpointed the issue and its potential consequences.
President of KTBA, Syed Zafar Ahmad, outlined the critical concern in a letter to the tax authorities. The crux of the problem revolves around the alignment of credit and debit notes issued on provincial returns within the context of the federal tax system.
Under the existing tax structure in Pakistan, sales tax paid under a Provincial law is recognized as input tax for a Sales Tax taxpayer under the Federal Sales Tax law, and vice versa. However, the KTBA has observed a misalignment in the implementation of this process. While base invoices correctly appear in the respective portals, the related debit and credit notes do not seem to align correctly.
This misalignment poses several significant issues. Firstly, it has the potential to result in a loss of tax revenue for the Federal Board of Revenue. Additionally, it unintentionally disallows legitimate input tax claims for federal sales taxpayers.
To illustrate the problem, the KTBA provided a scenario where a federal sales taxpayer claims input tax for services provided. If the service provider issues a credit note for any reason and the services are reversed, the federal sales taxpayer cannot adjust the input tax claimed. This is due to the fact that the credit note issued on the Provincial portal does not reflect in the Federal portal. Consequently, the taxpayer ends up inadvertently claiming excess input tax from the FBR.
This issue can also have a reverse impact on provincial sales taxpayers, making it imperative to address this misalignment swiftly. The KTBA stressed that credit and debit notes from Provincial portals must be synchronized and reflected accurately in each other’s portals.
The KTBA underlined the significance of this alignment for maintaining the integrity of Pakistan’s tax system and for preventing unintended non-compliance consequences for taxpayers.
The association concluded the letter by urging the FBR to take the necessary steps to rectify this issue promptly, emphasizing the need for swift corrective action to ensure the tax system’s effectiveness and fairness.
The misalignment of debt and credit notes is a significant issue that requires immediate attention to protect the interests of taxpayers and the integrity of the tax system.
KTBA Calls for Removal of HS Codes Condition in Sales Tax Returns
