Karachi, October 11, 2023 – The Karachi Tax Bar Association (KTBA) has raised concerns over the recent changes to the conditions for raising credit notes for sales tax returns, labeling them as impractical due to various legal loopholes.
In a letter addressed to the Chairman of the Federal Board of Revenue (FBR), KTBA expressed their reservations regarding the newly introduced procedures for issuing credit notes and the additional requirement for verification by the relevant Commissioner.
The KTBA acknowledged that the introduction of this additional step appears to be aimed at preventing revenue losses for the FBR. However, they emphasized that this decision places an undue burden on taxpayers and filers without the department itself making a significant effort to address the issue of revenue leakage.
KTBA President, Syed Zafar Ahmed, remarked, “The impractical and time-consuming process for a registered taxpayer to seek approval for credit notes is thoughtless and burdensome. This regulatory change is a poor example of how a regulator should implement new regulations without considering the time and cost implications for taxpayers.”
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The letter, sent urgently due to the persisting and unaddressed issues related to the FBR portal’s restrictions on credit note incorporation, highlighted the challenges faced by taxpayers since May 2023 when the IRIS system was stopped from including credit notes in Annexure-C of monthly sales tax returns.
KTBA pointed out that Circular No.5(17)STL&P/2021/136051-R, dated September 5, 2023, introduces a condition that contradicts rule 22 of chapter 3 of the sales tax rules, 2006. The latter rule allows for adjustments without the need for verification by a Commissioner. As such, the circular, along with its new condition, may be inherently legally flawed.
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Furthermore, the letter argued that the requirement for approval becomes impractical, especially in cases where the credit note amount is relatively small compared to the time and effort required for compliance. KTBA suggested the introduction of a monetary threshold below which approval from the Commissioner should not be necessary.
KTBA also pointed out that the Circular’s implications extend to situations where a service provider, not liable for sales tax registration, would be affected. A clarification is needed to ensure that the circular only applies to sales returns from unregistered entities under the Sales Tax Act, 1990.
The Circular also lacks clear timelines and document requirements, creating potential for arbitrary decision-making, according to the letter. KTBA raised concerns about the impact of the Commissioner’s approval time on the six-month period for issuing credit notes.
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While recognizing the need to safeguard federal tax revenue against fraudulent activities, KTBA urged that any amendments or restrictions should not unduly affect compliant sales taxpayers. They proposed a more pragmatic approach, including exempting B2B transactions conducted through bank payments from the circular’s ambit to prevent unintended consequences.
In conclusion, KTBA called for the immediate reversal of the new circular and its reintroduction with the necessary legal backing. They emphasized the importance of ensuring the new regulations do not place undue burdens on taxpayers while effectively addressing revenue leakage concerns.
