Industry can’t claim expenditure attributable to sales made to unregistered persons

KARACHI: An industrial undertaking will not be allowed to claim any expenditure attributable to sales made to such persons who are required to be registered but not registered under the Sales Tax Act, 1990.

The expenditure to be disallowed under this provision will not exceed 20% of total deductions claimed by the industrial undertaking.

The limitation in this manner indirectly allows admissibility of expenditure attributable for sales to unregistered persons beyond the said threshold.

A provision of a similar nature has also been introduced in Sales Tax Act, 1990, which aims to disallow claim of input tax attributable to sales made to the above-referred unregistered persons.

A collective reading of sales tax provision and this provision reveals that sales to the above-referred unregistered persons would result in significantly higher tax incidence for the registered sellers and hence,  creates an indirect pressure on registered persons to ensure that their relevant customers are registered under the Sales Tax Act.

FBR has been empowered to exempt persons or classes of persons from the application of this provision in hardship cases.

This section requires reconsideration with respect to the extent of expenditure that can be considered attributable to a particular sale for example, financial charges, etc; and the process of identifying a person who is required to be registered but not registered at the time of sale by the said industrial undertaking.

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