ISLAMABAD: The sales tax registered persons would not be entitled to take input tax adjustment of sales tax in respect of wasted inputs over and above the extent fixed and notified by the Federal Board of Revenue (FBR).
Explaining the Sales Tax (Imposition of Restrictions) on Wastage of Input Rules, 2020, issued by the FBR, renowned tax expert Ashfaq Tola told Business Recorder that the input tax on wastage of raw material was allowed as clarified through Circular 1 of 1989.
This input is allowed, and tax liability is determined in accordance with provisions of Section 7 of Sales Tax Act, 1990.
The legislature through Finance Act 2020 has given the FBR power to impose restrictions on wastage of material on which input tax has been claimed in respect of the goods or class of goods.
Now through SRO 938(I)/2020 dated 1st October 2020, the FBR has issued rules for the purpose of determination of restriction on wastage of material, on which input has been claimed.
The salient features of rules revealed that the action for determination of wastages may be initiated either by the FBR through suo motu or on a reference received from the chief commissioner of Inland Revenue or the director general of Intelligence and Investigation (Inland Revenue) or on the recommendations of any government agency or organisation or industrial or business association.
The FBR or chief commissioner of Inland Revenue or the director general of Intelligence and Investigation (Inland Revenue) shall conduct preliminary study or analysis of inputs and outputs before forwarding it to the input output coefficient organization (IOCO).
The IOCO shall carry out ascertainment of the exact description and specifications of the inputs and outputs; of details of the manufacturing and production processes and the plant and machinery (including equipment) used in the manufacturing and production processes; collection of relevant literature required to be consulted before, during or for the assigned work; identification and availability and engagement of the subject specialists including their payable or likely to be payable financial compensation or remuneration.
The IOCO shall carry out identification of industrial units required to be visited to physically examine the manufacturing and production process or processes with a view to ascertain the input-output ratios or wastages.
The details of the office bearers (or their nominees) of the concerned industrial or business association likely to be consulted during or for the exercise.
The estimate of the financial and other resources required to be made available for the targeted assignment; and timelines for the completion of the assignment including the preparation of the report of findings.
Ashfaq Tola explained that where the extent of wastages had been fixed and notified by the board under those rules, no registered person should be entitled to take input tax adjustment in respect of wasted inputs over and above the extent, so fixed and notified by the FBR.
The FBR or the IOCO may also obtain scientific, technical or other opinion from any external expert.
The FBR may review and revise the wastage restrictions on its own or by representation by any aggrieved person, Ashfaq Tola added.
Copyright Business Recorder, 2020
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