Karachi, May 19, 2024 – The Pakistan Business Council (PBC) has proposed the abolition of Section 8B of the Sales Tax Act, 1990, in its budget recommendations for the fiscal year 2024-25.
The PBC argues that eliminating this section would significantly alleviate the financial burden on the industry.
Section 8B of the Sales Tax Act restricts companies from adjusting input tax in excess of 90% of the output tax for a given period. According to the PBC, this restriction is increasingly problematic in light of recent economic challenges, including substantial hikes in gas and electricity prices and the dramatic depreciation of the Pakistani rupee. These factors have driven up manufacturing costs exponentially, making it difficult for companies to absorb the input tax.
“The application of Section 8B exacerbates the situation by limiting the claim of total input tax, resulting in the accumulation of substantial sales tax carry-forward balances that increase month by month,” the PBC stated.
The PBC highlighted that commercial importers, who pay a 3% minimum Value Addition Sales Tax at the import stage, are exempt from the minimum tax under SRO 1190 dated October 2, 2019. This discrepancy further complicates the financial landscape for manufacturing companies.
To address these issues, the PBC recommends the complete abolition of Section 8B. If this is not feasible, the PBC suggests at least exempting the following categories:
• Listed Companies
• Companies that reported losses in the preceding financial year and have paid the minimum turnover tax under the Income Tax Ordinance, 2001.
The PBC explained that imposing both the Minimum Turnover Tax and Section 8B on loss-making companies results in double jeopardy, creating severe financial constraints. The organization emphasized that the original intent of Section 8B was to deter fake claims of input tax. However, with the integration of all federal and provincial sales tax returns, the likelihood of fraudulent input tax claims has been significantly reduced.
Furthermore, the PBC argued that removing the restriction under Section 8B would not result in revenue loss for the government. The amount paid under Section 8B is ultimately refundable at the end of the financial year. However, the current process requires registered persons to file for a refund and follow up with tax authorities, resulting in unnecessary waste of time and resources for taxpayers.
“The abolition of Section 8B would streamline tax processes and reduce administrative burdens on businesses, allowing them to focus on growth and productivity,” the PBC stated.
The PBC’s proposal comes at a crucial time as the government prepares its budget for the next fiscal year. Industry stakeholders are hopeful that these recommendations will be considered to foster a more conducive business environment amid challenging economic conditions.
By addressing the concerns surrounding Section 8B, the PBC aims to support the manufacturing sector and enhance the overall economic stability of Pakistan. The council’s recommendations reflect a broader call for tax reforms that align with the current economic realities and support sustainable growth.
