KTBA Calls for Fixing Anomaly in Sales Tax Return

KTBA Calls for Fixing Anomaly in Sales Tax Return

The Karachi Tax Bar Association (KTBA) has raised an important issue with the Federal Board of Revenue (FBR) regarding a problem in the sales tax return process.

On Wednesday, the KTBA urged the FBR to address an anomaly that is creating difficulties for both taxpayers and tax practitioners. The concern was communicated in a letter addressed to Ms. Aisha Farooq, the Director General of Withholding Taxes at the FBR.

The KTBA explained that there is no provision in Annexure-B of the Sales Tax Return form that allows for the disallowance of input tax paid under Section 7A of the Sales Tax Act, 1990. This oversight is making it challenging for taxpayers to file accurate returns. KTBA President, Ali A. Rahim, expressed that this issue has become a serious concern and requires the immediate attention of the FBR.

One of the major issues pointed out by the KTBA is the introduction of a new invoice-wise or GD (Goods Declaration)-wise feature in the IRIS Sales Tax Return system, which was implemented starting November 2024. This feature was meant to classify input tax as non-creditable input tax, but it has caused complications. Taxpayers are unable to disallow the minimum value addition tax (VAT) paid at the import stage because the necessary provision is missing from Annexure-B in the IRIS system.

Before this feature was introduced, taxpayers could manually enter the amount for disallowing input tax at Serial No. 7 of the Sales Tax Return. However, with the new system, this option is no longer available, and as a result, the system automatically computes the sales tax liability, sometimes incorrectly. This creates problems for taxpayers who are unable to file their returns accurately, potentially leading to a lower tax liability than required.

To resolve this issue, the KTBA has requested that the FBR add the necessary provision to Annexure-B of the Sales Tax Return. This would allow taxpayers to correctly disallow the minimum value addition tax paid at the import stage and file their returns with the correct tax liability. The KTBA also emphasized that this correction is vital to prevent any loss of tax revenue.