Through this clarification, the FBR specified that "threshold of Rs10 million per month /Rs100 million per year is applicable on goods supplied to one specific person by the registered manufacturer."
The FBR's major restriction of disallowing input tax adjustment to the manufacturers under Tax Laws (Second Amendment) Ordinance, 2019 would not be applicable to supplies made to federal/provincial/local governments, foreign missions/diplomats and all other persons not engaged in supply of taxable goods.
The FBR's sales tax general order 1 of 2020 has relaxed a provision of the Tax Laws (Second Amendment) Ordinance, 2019 regarding input tax adjustment to manufacturers.
A leading Karachi-based sales tax expert explained that the FBR had issued clarification in respect of restriction of supplies to unregistered person recently brought through amendment under section 73(4) of the Sales Tax Act, 1990. According to the clarification, the threshold limit of Rs 10 million per month and Rs 100 million per year of supplies to unregistered person is applicable to one person and persons not liable to registered such as federal/provincial/local government, departments, etc, not engaged in taxable supplies, foreign missions, diplomats and privilege persons and all other persons not engaged in supply of taxable goods are excluded from the purview of this restriction.
The tax expert highlighted that the federal government recently brought an amendment in section 73 of the Sales Tax Act 1990, through the Presidential Ordinance. By virtue of amended provision of the sales tax law, a registered manufacturer cannot make supplies to unregistered person beyond the prescribed limit of Rs10 million per month or Rs 100 million per year and in case of non-compliance, the correspondence amount of input tax is not admissible to the extent of such excessive value of supplies to unregistered person.
The amendment sparked hue and cry among the registered large-scale manufacturing regime, as the language of the law gave an impression that threshold of unregistered supplies was applicable to supplies made to all unregistered persons during the month and since major part of their supply chain is not yet documented, the amendment may going to adversely impact the already registered regime. The issue, therefore, required board's clarification and thus was appraised by different quarters including Karachi tax bar association, he explained.
The board, after reviewing the matter and in response to the queries and concerns raised by the tax bar association, has issued clarification that the threshold limit of Rs 10 million per month and Rs 100 million per year of supplies to unregistered person is applicable to one person and persons not liable to registered such as federal/provincial/local government, departments etc not engaged in taxable supplies, foreign missions, diplomats and privilege persons and all other persons not engaged in supply of taxable goods are excluded from the purview of this restriction, the tax expert added.
According to sales tax general order 1 of 2020 issued here on Thursday, the section 73 of the Sales Tax Act, 1990 has been amended through the Tax Laws (Second Amendment) Ordinance, 2019 to provide for manufacturers to make all the supplies to a registered person excluding supplies not exceeding value of Rs 100 million in a financial year/Rs 10 million in a month, failing which the supplier shall not be entitled to claim input tax attributable to such excess supplies to unregistered persons.
Queries have been received from manufacturers regarding supplies to persons making purchases beyond the threshold as given in section 73(4) but are not likely to make taxable supplies and are also not liable to be registered under the Sales Tax Act.
In the wake of such queries and in order to remove difficulty arising from aforesaid new insertion, in exercise of powers under section 55 of the Sales Tax Act, 1990, the FBR is pleased to provide that the provisions of sub-section (4) of section 73 shall not apply to supplies made to federal/provincial/local government departments, authorities, etc, not engaged in making of taxable supplies, foreign missions, diplomats and privileged persons and all other persons not engaged in supply of taxable goods.
Moreover, it is clarified that the threshold of Rs10 million per month/Rs100 million per year is applicable on goods supplied to one specific person by the registered manufacturer, the FBR added.