KARACHI: Sales tax rules have defined method for determination of input tax claimed by registered persons.
According to rule 25 of Sales Tax Rules 2006, input tax paid on raw materials relating wholly to the taxable supplies shall be admissible under the law.
Input tax paid on raw materials relating wholly to exempt supplies shall not be admissible.
The amount of input tax incurred for making both exempt and taxable supplies shall be apportioned according to the following formula, namely:–
Residual input tax credit on taxable supplies =
Value of taxable supplies
—————————————————- x Residual input tax
(Value of taxable + exempt supplies)
Monthly adjustment of input tax claimed by a registered person under this Chapter shall be treated as provisional adjustment and at the end of each financial year, the registered person shall make final adjustment on the basis of taxable and exempt supplies made during the course of that year.
Any input tax adjustment claimed wrongfully on account of incorrect application of formula set out in sub-rule (3) shall be punishable under the respective provisions of law irrespective of the fact that the claim was provisional.
Federal Board of Revenue (FBR) said that this shall apply to the registered persons who make taxable and exempt supplies simultaneously.