Karachi, December 22, 2024 – Registered persons under the Sales Tax Act, 1990, have been permitted to deduct input tax from output tax on supplies made during a tax period. This provision, governed by Section 7 of the Act, aims to streamline the determination of tax liability for registered taxpayers.
The Federal Board of Revenue (FBR) clarified that this allowance is part of the updated Sales Tax Act, 1990. Section 7 outlines the conditions and provisions under which input tax deduction is permissible, ensuring compliance and proper tax management.
Key Provisions of Section 7:
1. Determination of Tax Liability: Sub-section (1) of Section 7 allows registered persons, subject to Sections 8 and 8B, to deduct input tax paid or payable during a tax period from the output tax. This deduction excludes further tax under Sub-section (1A) of Section 3. Adjustments specified in Section 9 are also permissible.
Furthermore, if input tax is not claimed within the relevant period, registered persons may claim it in their returns for any of the six succeeding tax periods. This provision ensures flexibility in managing sales tax obligations.
2. Conditions for Input Tax Deduction: Sub-section (2) specifies that input tax can only be deducted if certain conditions are met:
o The registered person holds a tax invoice bearing their registration number for taxable supplies.
o For electricity or gas supplies, a bill with the registration number and installation address must be available.
o For imported goods, the bill of entry or goods declaration must display the sales tax registration number.
o Goods purchased in auctions require a treasury challan with the registration number showing sales tax payment.
3. Special Permissions: Sub-sections (3) and (4) allow the FBR or Federal Government, through notifications, to impose conditions, limitations, or restrictions on the deduction of input tax. These measures can be tailored to specific goods, persons, or classes of persons to ensure proper sales tax management.
4. Restrictions on Wastage: Sub-section (5) empowers the FBR to impose restrictions on wastage of materials for which input tax has been claimed. This provision aims to curb misuse and maintain sales tax accountability.
The updated provisions emphasize the importance of proper documentation and adherence to sales tax regulations. By allowing input tax deductions, the Sales Tax Act provides registered persons with an efficient mechanism to manage their sales tax obligations, ensuring transparency and compliance in the taxation system.