ISLAMABAD: The Federal Board of Revenue (FBR) has yet to begin payment of sales tax refunds to various sectors including pharmaceuticals, on which 17 percent sales tax was imposed from January 16, 2022.

Sources told Business Recorder that Rs251 billion, out of total Rs343 billion tax exemptions withdrawn will be refunded/adjusted to the pharmaceutical sector, importers of capital machinery, raw materials, and local suppliers of 11 items.

The government has enforced the Finance (Supplementary) Act, 2022 to withdraw sales tax exemptions to the tune of Rs343 billion from January 16, 2022.

The sales tax exemption to the tune of Rs160 billion was withdrawn from the pharmaceutical sector. However, the local supply has been zero-rated. The FBR has finalised arrangements of refund payments to the pharmaceutical companies under the “FASTER-Pharma”. However, legally the FBR is bound to give refunds on “consumption basis” after supply of the zero-rated finished products.

So far, no sales tax refunds or adjustments have been issued to the pharma sector or other sectors on which 17 percent sales tax was imposed from January 16, 2022.

Sources said that the FBR has withdrawn sales tax exemption of Rs82 billion on the import of capital machinery.

This included machinery imported for power generation, power transmission, renewable energy such as solar, wind and transmission, mining and extraction of minerals, and CKD kits for single cylinder engines. The impact of withdrawal of exemptions would be mitigated through adjustments and refunds expeditiously of Rs82 billion.

Sources said that the sales tax adjustment would be available to the zero-rated items under the sales tax law. The input output system would determine payment of refunds to the zero-rated items under section 7 (determination of tax liability) and section 10 (refund of input tax) of the Sales Tax Act, 1990.

Under section 10 of the Sales Tax Act, if the input tax paid by a registered person on taxable purchases made during a tax period exceeds the output tax on account of zero-rated local supplies or export made during that tax period, the excess amount of input tax shall be refunded to the registered person. In case of excess input tax against supplies other than zero-rated or exports, such excess input tax may be carried forward to the next tax period, section 10 of the Sales Tax Act added.

Copyright Business Recorder, 2022