Special Procedure Unveiled for Sales Tax Refund in Pharma Sector

Special Procedure Unveiled for Sales Tax Refund in Pharma Sector

Karachi, December 19, 2023 – In a significant move to streamline processes and facilitate the pharmaceutical sector, the Federal Board of Revenue (FBR) has unveiled a special procedure for the issuance of sales tax refunds during the tax year 2024.

The updated Sales Tax Rules, 2006, specifically address the claim of sales tax refunds by the pharmaceutical sector.

Refund to Pharmaceutical Sector

Under the new provisions, outlined in Rule 39H, the chapter applies to refund claims for the tax period starting from January 15, 2022, onwards. The beneficiaries of this chapter are registered individuals engaged in the import or supply of zero-rated drugs as per the Drugs Act, 1976 (XXXI of 1976), or medicaments classified under Chapter 30 of the First Schedule to the Customs Act, 1969 (IV of 1969), excluding PCT heading 3005.0000.

Extent of Payment of Refund Claim

Rule 39I delineates the extent of payment for refund claims. The total amount paid against the claims processed shall not exceed the lower of two amounts: the input tax actually consumed in goods supplied at a zero-rated rate or the amount specified by the Board as per a determined ceiling.

Filing and Processing of Refund Claims

The filing and processing of refund claims are addressed in Rule 39J. Monthly national sales tax return data will serve as the support for refund claims, and no separate electronic data submission is required. The return, along with all prescribed annexes, is considered filed upon submission. However, Annex-H can be submitted separately within 120 days, extendable by the Commissioner for a maximum of sixty days based on a recorded application.

Risk Management in Refund Processing

Rule 39K introduces risk management in refund processing. After submission, the Risk Management System (RMS) will process the claims. Refund claims meeting RMS parameters will be processed through the Fully Automated Sales Tax e-Refund Pharma (FASTER PHARMA) module. Claims not meeting RMS parameters will be processed under Chapter V.

Processing in FASTER PHARMA Module

Rule 39L details the processing in the FASTER PHARMA module. Claims routed to this module will be electronically processed, scrutinized, and verified by the system. The refund payment order (RPO) of the admissible amount will be generated and communicated directly to the State Bank of Pakistan within seventy-two hours for onward credit to the claimant’s notified account.

Processing in STARR Module

Rule 39M outlines the processing in the STARR module for the part of the refund claim that is not verified or found inadmissible. The system will perform validation checks weekly, and RPOs will be generated for valid amounts. If any amount remains un-cleared after eight validation checks, the claim will be processed under the STARR module.

Miscellaneous Provisions

Rule 39N addresses miscellaneous provisions, stating that the provisions related to bank advice transmission, post-refund scrutiny, supportive documents, responsibility of claimants, and action on inadmissible claims in Chapter V will be applicable to refund claims under this chapter. Supportive documents will only be required if requested by the officer in charge of post-refund scrutiny with the approval of the concerned Commissioner.

This new procedure aims to expedite and simplify the sales tax refund process for the pharmaceutical sector, promoting efficiency and transparency in financial transactions within the industry.