FBR allows auto manufacturers to adjust input tax to the extent of 95% of output tax

KARACHI: The Federal Board of Revenue (FBR) has allowed automobile manufacturing companies to adjust input tax to the extent of 95% of the output tax for that tax period, and excess amount will be carried forward to the next tax period.

According to SRO 36(1)/2020 issued on Tuesday, automobile manufacturing companies that are listed on Pakistan Stock Exchange (PSX) till December 2020, may adjust input tax to the extent of 95% of the output tax for that tax period, and excess amount will be carried forward to the next tax period.

It may be mentioned here, Section 8B of Sales Tax Act provides that a registered person shall not be allowed to adjust tax in excess of 90% of the output tax in a tax period.

In a particular tax period, a registered person can adjust input tax paid on goods and services purchased from local market, imported from abroad and goods purchased in auction during that tax period. The person can also claim input tax paid in the immediate twelve preceding tax periods by mentioning the reasons for not claiming it earlier on the sales tax return.

In relation to tax period, a registered person shall not be allowed to adjust input tax in excess of 90% of the output tax for that tax period. The adjustment or refund of remaining input tax shall be made on yearly basis in the second month following the end of the financial year of the registered person.

Retailers importing goods in bulk and operating chain of stores are also allowed adjustment of input tax to the extent of 95% of output tax.

According to SRO 1190(I)/2019, persons registered in electrical energy sector; oil marketing companies and petroleum refineries; fertilizer manufacturers; distributors; gas distribution companies; telecommunication services; Pakistan Steel are excluded from the purview of Adjustable Input Tax.

Moreover, persons making zero-rated supplies including exports (provided that value of such supplies exceeds 50% of value of all taxable supplies in a tax period) are also excluded from the purview of Adjustable Input Tax.

Registered persons other than manufacturers making supplies of items covered under the Third Schedule of Sales Tax Act (provided that value of such supplies exceeds 80% of value of all taxable supplies in a tax period); and commercial importers are entitled to claim exclusion of Adjustable Input Tax.

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