General

FBR Disallows Input Tax Adjustment on 778 Items for Steel and Edible Oil Sector

The Federal Board of Revenue (FBR) has issued a list of 778 items on which manufacturers of oil and ghee, steel melters and re-rolling mills cannot claim input tax adjustment in their monthly sales tax return.

In this connection, the FBR has issued Sales Tax General Order (STGO) 12 of 2022 on the input tax adjustment to manufacturers of oil & ghee and steel sector.

From April 1, 2022, the manufacturers of oil and ghee would not be entitled to claim input tax adjustment on 348 items. The steel melters and re-rollers would not be able to claim input tax adjustment on 430 items.

In the case of manufacturers of oil and ghee, the disallowance of input tax adjustment coves items like bones and horn-cores, pepper of the genus piper dried or crushed, wheat or meslin flour, flour, meal, and flakes of potatoes, wheat gluten whether or not dried, cane sugar, sugars, including lactose, maltose, glucose, molasses, sauces and preparations therefor, mineral waters, natural water, oil-cake and other solid residues, sunflower oil cake, rape or colza seed oil cake and other items specified.

The FBR has issued a separate list of 430 items for the steel sector on which the input tax adjustment cannot be claimed.

Sector experts informed that the denial of input tax adjustment would have consequences for the manufacturers of oil and ghee and steel sector. The amount of tax adjustments would be decreased within the supply chain and their output would subsequently increase.

According to the FBR, the Sales Tax Act, 1990 (Act) mandates a taxpayer registered with the FBR to claim the input tax credit on imports and purchases from registered suppliers only. A section of the Act restricts the adjustment of input on goods or services used or to be used for any purpose other than for taxable supplies made or to be made.

Similarly, another section of the Act provides that tax credit shall not be admissible on the goods or services not related to the taxable supplies made by the taxpayer. This essentially being a self-assessment-based system warrants high standards of responsibility and integrity on part of the UST filers.

However, the analysis of the data available in the system has led to conclude that the facilities and benefits provided through automated sales tax returns are being misused by the manufacturers of oil & ghee and steel melters and re-rolling mills who are claiming inputs other than their relevant business activities in violation of provisions of law.

In order to ensure certainty and transparency across the board, it has been decided that input tax adjustment shall not be allowed to the manufacturers of oil and ghee and steel melters and re-rollers on the goods which are not related to their business activity. The list of such goods is attached as Annexure-I for manufacturers of Oil & Ghee and as Annexure-11 for Steel Melters and Re-Rollers based on the Pakistan Customs Tariff (PCT) heading on which input tax credit shall not be admissible under the law. Although all these PCT headings have been identified after due diligence, any hardship caused may be brought to the notice of the Commissioner concerned.

This STGO become applicable with effect from April 1, 2022, FBR added.

Source: Pro Pakistan