SRO 350 Sparks Controversy as PBC Raises Tax Return Concerns

SRO 350 Sparks Controversy as PBC Raises Tax Return Concerns

Karachi, July 9, 2024 – The Pakistan Business Council (PBC) has raised significant concerns regarding recent amendments to the Sales Tax Rules, 2006, introduced through SRO 350(I)/2024 by the Federal Board of Revenue (FBR).

In a letter addressed to the Member Inland Revenue – Operations of FBR, the PBC highlighted severe challenges faced by sales tax registered persons since the implementation of these amendments.

The crux of the issue lies in the treatment of sales tax returns under the new provisions. According to SRO 350(I)/2024, sales tax returns filed by buyers of taxable goods are deemed provisional in the IRIS Portal until the respective seller files their return for the same tax period by the due date. If the seller fails to file a return or submits an invalid or incomplete one, the provisional return of the buyer is automatically finalized. This finalization leads to the deletion of input tax entries related to purchases from non-compliant suppliers from the buyer’s return.

“This automated process adversely affects compliant taxpayers,” stated the PBC. The sudden disallowance of input tax due to the non-compliance of suppliers places significant financial strain on buyers, impacting their working capital and operational capabilities. It forces them into a payable position, disrupting their financial planning and business operations.

Furthermore, the IRIS Portal’s technical limitations prevent adjustments in Annexure A and F of provisional returns after the end of the month. Unsubmitted purchase invoices are automatically removed from Annexure A, reducing the value of purchases and corresponding input tax adjustments in Annexure F. This anomaly causes the net value of purchases to turn negative in Annexure F, leading to submission errors when filing final returns.

“The inability to submit final returns due to technical issues exacerbates the difficulty of doing business in the current macroeconomic environment,” lamented the PBC. They emphasized that such constraints are unjust and contradict the principles of fair business practice and justice under the law.

Moreover, the PBC underscored that the ripple effect of non-compliance by one entity impacts the sales tax returns of all associated parties, disrupting the entire supply chain. This cascading effect further exacerbates the operational challenges faced by compliant taxpayers.

In light of these pressing issues, the PBC urged the Member FBR for immediate intervention to resolve these issues promptly. They emphasized that compliant taxpayers should not bear the brunt of non-compliance by others and called for corrective measures to align with the spirit of justice and equity in taxation.

The PBC’s letter reflects growing frustration within the business community over regulatory hurdles that hinder operational efficiency and financial stability. As stakeholders await a response from the FBR, the outcome of these deliberations will be crucial in determining the future ease of doing business in Pakistan.