ISLAMABAD: The government has no intention to abolish/amend Section 8B of the Sales Tax Act 1990 in the coming budget (2021-22) to allow registered taxpayers to claim 100 percent input tax adjustment.

Under the section 8B of the Sales Tax Act, a registered person shall not be allowed to adjust input tax in excess of 90 per cent of the output tax for that tax period.

Sources told Business Recorder that if the government would allow 100 percent adjustment/refund against the input tax, it would open a flood gate of fake and flying invoices in the country. The provision has ensured to discourage use of flying invoices by the manufacturers/exporters to claim adjustment. The measure is also very effective to prevent tax frauds. The withdrawal of the section 8B from the Sales Tax Act 1990 would destroy the entire Value Added Tax (VAT) system in the country. Therefore, there is no proposal to withdraw section 8B of the Sales Tax Act 1990 in the upcoming budget.

When contacted, a tax expert said that the sales tax regime is based on self assessment hence without proper documentation and whilst relying on fake invoices and seeking adjustment on inadmissible amounts registered persons are able to claim excessive amounts which hamper the recovery of tax. Section 8B of the Sales Tax Act was legislated to ensure refund of admissible claims of input tax. The refund is given up to 90% allowing the registered person to claim refund of 10% in the next tax period so that the registered person is discouraged from claiming excessive adjustment.

In order to recover input tax adjustment amounts the registered person claims amount which are due to it which means that the 10% restriction discourages wrong claims. The 90% restriction was required to ensure that the tax is collected and the registered person documents its transactions so as to reduce mis-declarations and fake invoicing, they added.

Under SRO 1190(I)/2019, the requirement of payment of 10 percent minimum valuation additional tax is not applicable on certain categories of taxpayers.

Under the said SRO, the restriction of 90 percent of output tax was not apply to different categories of taxpayers. According to a tax expert, the FBR has issued SRO 1190(I)/2019 with respect to applicability of section 8B of Sales Tax Act, 1990 (STA). The section 8B provides that input tax amount, exceeding 90 percent of the output tax for a period, shall not be allowed to be adjusted in that period and will be carried forward to next tax periods.

The SRO 1190 provides that the restriction of 90 percent output tax will not apply to certain categories of taxpayers.

Copyright Business Recorder, 2021