Input tax adjustment method may be revised in budget

The government is likely to revise procedure for obtaining adjustment of input tax under the controversial section 8B of the Sales Tax Act, 1990 in the upcoming Budget 2008-09.
Sources told Business Recorder on Thursday that the issue was also taken up during the budget meeting of FBR Sales Tax Wing held on Thursday chaired by FBR Chairman M. Abdullah Yusuf. The Federal Board of Revenue (FBR) is seriously examining the issues involved in limitation of input tax adjustment under section 8B of the Sales Tax Act.
The provision was introduced in last budget restricting the taxpayers to adjust input tax to the extent of 90 percent of their output tax. Under the law, a registered person shall not be allowed to adjust input tax in excess of 90 percent of the output tax for that tax period.
Provided that the tax charged on acquisition of fixed assets shall be adjustable against output tax in 12 equal monthly instalments after the start of production. This measure was taken to discourage the malpractice regarding the adjustment of input tax by the unscrupulous elements.
As a result of this provision, the business community faced undue hardships during 2007-2008. Due to limited adjustment facility available under the provision, there was blockage of funds, undue delay in refunds and disallowance of input tax in the sales tax return.
Throughout the fiscal year, the business community has time and again requested the board for taking away this controversial amendment. Sources said that majority of the business houses have blocked a huge amount of working capital.
Moreover, the department has shown a lethargic approach towards the payment of refunds. Now, some amendment is expected to the Finance Bill 2008-09 to facilitate the taxpayers in obtaining input tax adjustment.
Although, the FBR had excluded certain classes of registered persons, including oil marketing companies/petroleum refineries; fertilisers manufacturers; distributors; wholesalers-cum-retailers and commercial importers from the purview of section 8B, but large number of businessmen are still facing problem due to this provision.