Karachi, August 28, 2024 – The Karachi Tax Bar Association (KTBA) has brought attention to the tax challenges faced by Pakistan’s pharmaceutical sector following recent changes in sales tax regulations.
In a recent correspondence with Hameed Ateeq Sarwar, Member (Inland Revenue – Policy) of the Federal Board of Revenue (FBR), KTBA President Syed Zafar Ahmed highlighted the issues arising from the amendments to the Sales Tax Rules, 2006.
The concern revolves around a new provision introduced under Rule 18A of the Sales Tax Rules, 2006, via SRO 1130 of 2024, dated August 1, 2024. This provision specifies that the second proviso to sub-rule (3) of Rule 18, which was initially inserted through SRO 350 of 2024 dated March 7, 2024, will not apply to invoices issued by certain registered entities from March 7, 2024. These entities include gas transmission and distribution companies, electricity distribution companies, independent power producers or WAPDA, manufacturers, distributors, wholesalers, or retailers of Third Schedule items, petroleum exploration and production companies, and other registered buyers.
Under the current sales tax regime, as outlined in Serial No. 81 and 82 of the Eighth Schedule of the Sales Tax Act, 1990, the pharmaceutical sector is subjected to a fixed 1% sales tax rate without the right to claim any input tax. This rule has created a unique situation for the sector, as explained by the KTBA.
Syed Zafar Ahmed, President of KTBA, pointed out that once the sales tax for the entire supply chain has been paid by pharmaceutical manufacturers, requiring vendors or suppliers to submit returns under Rule 18(3) becomes redundant in these cases. “The condition for vendors or suppliers to submit returns under Rule 18(3) is unnecessary once the sales tax for the entire supply chain has been paid by pharma manufacturers,” Ahmed emphasized.
The KTBA has requested the FBR to extend the provisions of Rule 18A of the Sales Tax Rules, 2006, to include the pharmaceutical sector. This inclusion would align the pharma sector with other entities exempted under the recent amendments, providing relief to the industry from the additional administrative burden.
The recent changes have prompted a call for clarity and fairness in the application of sales tax laws. The KTBA’s appeal to the FBR underscores the need for more comprehensive and considerate tax policies that accommodate the unique dynamics of different industries. As the FBR considers these requests, stakeholders in the pharmaceutical sector remain hopeful for a favorable resolution that addresses their tax concerns while ensuring compliance with national tax regulations.