Return of goods made to unregistered persons: KTBA for allowing output tax against credit notes

KARACHI: Federal Board of Revenue (FBR) has disallowed adjustment of output tax against credit notes on the basis of return of goods made to the unregistered persons, creating immense difficulties for taxpayers.

According to a letter sent to the chairman FBR by the Karachi Tax Bar Association (KTBA), the adjustment of output tax in the sales tax return, with effect from tax period July 2021, has been suspended due to return of goods/cancellation of supply made to unregistered persons, which the KTBA believe was in contrast to the legal provisions provided in Section 9 of Sales Tax Act, 1990 (Act), read with Rule 20(3) and Rule 22(3) of the Sales Tax Rules, 2006 (Rules).

It said that this adjustment of output tax was available under Annexure-I of the Sales Tax Return till Tax Period June 2021. However, now the Sales Tax Return disallows such adjustment of output tax in such cases with remarks: “please enter valid invoice” albeit no amendment is brought in the Act or the Rules in the post-June 2021 scenario.

Furthermore, the KTBA said that the FBR support team when contacted replied via email that as per instructions of FBR, the credit/debit note was not allowed against unregistered sales/purchase.

KTBA urged the chairman FBR to restore the adjustment output tax resulting due to cancellation of supply made to unregistered persons under Annexure-I of the sales tax return in line with the prescribed act and rules.

Copyright Business Recorder, 2021