The Federal Board of Revenue has issued a comprehensive procedure for input tax adjustment to Pakistani registered persons against their purchases from registered units located in the Azad Jammu and Kashmir. The FBR issued a sales tax general order 18 of 2010 here on Tuesday to remove a major flaw in claiming adjustment in such cases.
According to the procedure, the registered units in AJK, engaged in selling goods to registered persons in Pakistan will submit undertaking to the respective Large Taxpayer Units (LTU) and Regional Tax Office (RTO) in Pakistan that they will supply all data/record needed by FBR authorities to ascertain correctness of their sales to Pakistani registered person. Following receipt of undertakings the concerned RTO/LTU will allow input adjustment to Pakistani registered persons.
The sales tax general order has elaborated that the current FBR integrated database consisting of e-filed Sales Tax/Federal Excise returns, e-filed Income Tax returns and Custom clearances made through PACCS/One Customs allows input adjustments to the sales tax registered persons in Pakistan only.
The clause (e) of sub-section (14) of section 2 of the Sales Tax Act, 1990, however, entitles adjustment of input tax levied under Sales Tax Act, 1990, as adapted in Azad Jammu and Kashmir (AJK), on supplies of goods received by a registered person in Pakistan from their suppliers in AJK (AJK units).
As the return data of AJK units does not appear in FBR integrated database, the supplies from them appear from non-registered persons and thus not entitled to input adjustment by Pakistani registered persons. In their representation M/s Sheraz Industries (Pvt) Limited, Rawalpindi, a unit of AJK, has agitated the matter of not allowing input adjustment to their buyers registered in Pakistan, who do not want to purchase from them as they cannot claim input adjustment.
In order to mitigate their genuine problem the Board is pleased to lay down the following procedure for input adjustment in such cases. All the units registered in AJK who are selling goods to registered persons in Pakistan will give undertaking to the respective RTOs/LTUs in Pakistan that they will supply all data/record needed by Pakistani tax authorities to ascertain correctness of their sales to Pakistani registered person.
After receipt of requisite undertakings the concerned RTO/LTU in the Pakistan may manually allow input adjustment to Pakistani registered persons after fulfilling all the conditions of section 7, 8 and 73 of the Sales Tax Act, 1990, and the rules notified thereunder, the procedure added.