Annexure H of sales tax return: FBR urged to abolish 120-day deadline

Karachi Tax Bar Association (KTBA) has strongly urged the Federal Board of Revenue (FBR) to abolish the prescribed deadline of 120 days for filing Annexure H of the Sales Tax return for expeditious processing of refund claims by manufacturers-cum-exporters.

In a letter sent to the chairman FBR, KTBA said that as per the amendments made in Sales Tax Rules, 2006 vide SRO no. 918(I)/2019 dated August 7, 2019, mechanism for expeditious processing of refund claim was devised only for manufacturers-cum-exporters.

As per the rules, refund will be treated as having been filed only after filing of Annexure H of the Sales Tax return, for which deadline of 120 days has been prescribed in the rules and the same can be extended for a period of 60 days on the basis of approval from the commissioner.

However, the rules are silent about the mechanism for processing of sales tax refunds in case Annexure H has not been filed by manufacturer-cum-exporter for any reason.

Therefore, the legal and legitimate right of the taxpayer to claim adjustment/refund of the input tax, either of the following two options should be considered by the FBR for facilitation of exporters:

i. Allow filing of Annexure H without any time limit [present time limit of 4 months be abolished and taxpayer be allowed to claim refund as and when required]

ii. In case present limit of 4 months cannot be abolished, registered persons should be allowed at least to alternatively file refund on annual basis after the end of the tax year.

Apart from the above, Annexure H is only being allowed to be filed to taxpayers who have filed the said Annexure from sales tax returns of July 2019 and onwards. Instead of claiming refund, some taxpayers have reported sales tax carried forward balance in their sales tax returns from July 2019 onwards.

In case they now intend to file Annexure H from the current month, FBR's online portal does not allow such taxpayers to enter opening balance of inventory/raw materials as the said field in blocked for editing.

This limitation should be removed and taxpayers should be allowed to file Annexure H for any specific month, for which they intend to claim refund. From apparent mechanism being followed by the system, it appears that those taxpayers who have not filed Annexure-H for the month of July 2019 will never be allowed to file Annexure H for any subsequent month.

This apparent anomaly should be resolved at earliest, KTBA said and added that this would have no revenue loss to the government as sales tax collected was otherwise adjustable, however, through industrialisation, the government would be able to generate more tax revenue as well as employment opportunities.

KTBA said that sales tax on conversion cost like electricity/gas bills for manufacturers whose export sales during the preceding tax year is more than 40 percent of the total sales should be abolished and sales tax liability, if any, on local sales, would be discharged by the registered person at the time of filing of monthly sales tax return.

It said that sales tax was being collected from manufacturers on almost all value additions like conversion cost, contractors, transporters etc. and they were also required to pay 10 percent minimum value addition tax over and above all these inputs under section 8B of the Sales Tax Act, 1990 whereas on the other hand, commercial importers paying 3 percent minimum value addition tax at import stage was excluded from section 8B.

KTBA suggested excluding manufacturers of 100 percent taxable goods from the ambit of section 8B of the Sales Tax Act, 1990 in order to provide level playing field to the manufacturers.

Earlier as per Chapter X of the repealed Sales Tax Special Procedures Rules, 2007 both the goods as imported by a manufacturer of goods for in-house consumption as well as goods imported by registered service providers for in-house business use, were exempt from levy of MVAT, however, in the 12th schedule of the Sales Tax Act, 1990, exemption from MVAT in case of imports of Plant & Machinery/spare parts by manufacturers of goods, has not been retained, it maintained.