Input tax

Question 1

what is the condition for importer to claim input tax?

Answer 1

Import: bill of entry in his name showing registration number.
Note: Sales tax on imports is claimable on paid basis only to the
extent of sales tax paid and shown in goods declaration.

Question 2

what is the condition for claiming of input tax for manufacturer/dealer/whoesaler/retailer?

Answer 2

• Holds tax in his name
• should issue electronic invoice
• in case of auction purchase holds treasury challan in his name
• in case of the electricity bill if it
  reflects the customer’sb registration number and address where connection is installed. Input is not allowed
  in respect of supply of electricity and gas to labour residential colonies.
  input tax on electricity is claimable on paid basis.

Question 3

what is penalty related to not issuing sales tax invoice?

Answer 3

A person who fails, to issue an invoice when required under Act or make payment as prescribed in section 73, shall be
liable to pay the penalty of Rs.5,000 or
3% of the amount of tax involved
whichever is higher.

Question 4

what are the conditions for claiming input tax for opening stock by importer?

Answer 4

to claim the opening stock for the importer
1. application of registration within 90 days
2. GD/BOE
3. Unsold
4. Verifiable (normally FBR personal visits the site to verify)

N-1: Sales tax would have been
charged @ 21% (18%+3%) in this
case.

Question 5

what is the condition for claiming input tax for opening stock of local purchases by newly registered person?

Answer 5

In the case of local purchases the concept is the same;
1. application of registration within 30 days
2. Tax invoice
3. Unsold
4. Verifiable (normally FBR personnel visits the site to verify)

Question 6

what are the conditions related to purchase that can render the input tax claimed on such purchase inadmissible?

Answer 6

Section 73
- Payment>50,000 not through banking channel
- payment not made from/to bank accounts of buyer/seller or payment made from/to bank accounts of buyer/seller not declared to board at the time of registration.

• Payment not made within
  180 days of issuance of tax invoice in case of credit transactions. (Board may
  extend time through condonation u/s 74).
• inter-party adjustments not made as per provisions of same sections.

Question 7

what are the conditions for inter-party adjustments to claim the input tax.

Answer 7

adjustments made by a
registered person in respect of
amounts payable and
receivable to and from the
the same party shall be treated as
payments subject to the following
conditions, namely:

(i). sales tax has been charged and
paid by both parties

(ii). the registered person has
sought prior approval of the
Commissioner before making
such adjustments

Question 8

which goods are exempt from VAT taxation of 3% at the time of import?

Answer 8

1. Raw material imported by manufacturer for in house consumption excluding compressor scrap, motor scrap, copper cable cutting scrap.
2. Plant, machinery and equipment falling in chapter 84 and 85.
3. Petroleum products by OMC.
4. RLNG/LNG
5. 2nd hand worn clothing and footwear.
6. Gold and silver in unworked condition

(g) Cellular mobile phone or satellite phones

(h) Goods specified in 3rd schedule on which input tax is paid on retail
price basis.

(i) Electric vehicles (4 wheelers) CKD kits/CBU, and small cars/SUVs, with restricted battery

(j) Electric vehicles (2-3 wheelers and heavy commercial vehicles)
in CBU condition till 30th June, 2025

(k) motor cars of cylinder capacity up to 850cc.

items in 8th schedule shall be charged with VAT.

Question 9

can we claim input tax arising due to VAT against output? is the refund available?

Answer 9

value addition tax will form
part of input tax and will be deducted
from output tax.it cannot be refunded.
it can only be carried forward for
adjustment against output of
subsequent period. However, refund
of 3% value addition tax shall not be
barred if paid on goods used in making
zero-rated supplies.

Question 10

what are the restrictions of input tax adjustment against output tax due to sales to unregistered?

Answer 10

(1) A registered person shall make all taxable supplies to a person who
has obtained sales tax
registration number. However, supplies up to:
* Rs. 10 million per person per month
* Rs.100 million per person in a financial year Can be made to unregistered
persons.

(2) In case of non-compliance the supplier shall not be entitled to
claim input tax attributable to such excess supplies to
unregistered persons.
Similarly, expense will be
disallowed proportionate to total turnover in income tax.

Similarly, as per section 23 read with section 8, any tax invoice issued shall bear the CNIC/NTN number in case supplies are made by the manufacturer or importer to unregistered distributor. In case of noncompliance input tax attributable
to supplies made to unregistered person on pro-rata basis is disallowed.
However, there is no condition of CNIC in case payment is made through debit/credit card or digital mode.

Question 11

which supplies are exempted from Restriction on input on
supplies to unregistered
persons (Sec 73(4),Sec
23, Sec 8)?

Answer 11

Further, FBR has clarified vide
STGO 01 of 2020 dated
16.01.2020 that above
provisions 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.
• Registered persons engaged in
  manufacturing and supply of
  fertilizer upon submission of
  required documents.

Question 12

what are conditions for duty drawback?

Answer 12

• Duties/taxes have been paid
• reexported, subsequently within 2 years and an extension of 1 year can be obtained
• =100x7/8 shall be available.

Goods that are subsequently paid off
c) repayment of sales tax as a drawback in respect of goods which have been taken into use between importation and re-exportation shall be subject to such order, conditions or limitations as may be
imposed by the Board.

Question 13

how sales tax on the finished goods imported are apportioned?

Answer 13

No apportionment is required as goods are in finished form. However,
if a certain portion of finished goods sold is zero-rated/ exempt, then apportionment will be required.

Formula
Residual input tax
x
value
of taxable supplies/
value of taxable
+
exempt
supplies

Question 14

what is residual input?

Answer 14

Input tax on goods used for both taxable
(including zero rated) and exempt supplies is called residual input tax which is apportioned as:

Residual input tax x value of taxable
supplies/ value of taxable + exempt supplies

Question 15

how is the brought forward input tax apportioned?

Answer 15

Brought forward input tax should not
be used for apportionment as it’s already
apportioned. However, it will be apportioned in case of sales to an unregistered person without CNIC

Question 16

what is treatment for sales return and purchase return in case of apportionment of residual input tax?

Answer 16

Sales return figure and purchase
return figure shall be taken into account in
sales/purchase value while apportioning
residual input tax.

Question 17

what is treatment for input on services, packing material and fixed assets while apportioning of residual input tax?

Answer 17

Input not claimed previously but
claimed in this month due to six month time limit, input tax on services, packing material and fixed assets shall also be taken into account in residual input tax figure while apportioning.

Question 18

how are the sales tax input in case of trading of finished goods is apportioned?

Answer 18

There would be no apportionment in
case of trading in any finished goods as input and output is identifiable wrt finished goods.
However input will be apportioned if some of the purchased goods are locally sold and
remaining portion is exported/exempt.

Question 19

On which instances the tax credit on input tax in not allowed as per section 8?

Answer 19

1. Goods and services used other than taxable supplies (including exempt)
2. Goods subject to extra tax under section 3(5) Only extra tax is disallowed.
3. fake invoices, discrepancy by CREST, import/purchase of Agriculture machinery/equipment @ 7% under 8th Sch, ST not deposited by supplier
4. Services on which input tax adjustment is barred under provincial law (Services at reduced rate or under reverse charge mode are barred in provincial laws)
5. Goods used/permanently attached to immoveable property such as construct materials, paints, sanitary fittings, pipes, wires, cables.
6. Vehicles, vehicle parts, furniture, furnishings, electric and gas appliances, office equipment.
7. Purchases from person whose registration is suspended or blacklisted
   by Commissioner.
8. Foods, Beverages, garments and consumption on entertainment, gifts/give aways purchased for customers etc., crockery, cutlery.
9. The input goods or services attributable to supplies made by manufacturer or importer to unregistered distributor on pro-rata basis for which sale invoices do not bear the NIC/NTN of unregistered
   distributor.
10. Give aways including diaries/calendars, supply of electricity to residential colonies.
11. Purchases from registered but non-active tax payer or person temporarily registered.
12. Goods/services which at time of filing return have not been declared by supplier in his return or he has not paid due amount of tax.
13. Purchases made by person who fails to provide invoice or other required documents/information to tax officer.

Question 20

what are the exceptions to the tax credit not allowed on Goods/services used other than for taxable supplies (including
exempt) as per section 8?

Answer 20

Note-1: Input allowed on wastage of RM during manufacturing (Cir 1,
1989), however, Board may impose restrictions under Rule 25A-25K of the Sales Tax Rules, 2006 on wastage of material on which input tax has been claimed. Similarly input allowed on loss of goods in transit.
However, it is not allowed on expired goods.

Note-2: Input tax on goods subsequently destroyed (e.g. fire etc.) is
not allowed. Further any insurance claim received (without surrendering the right of goods) is also not supply hence not taxable.
Input also not allowed on stores written off.

Question 21

what are the exceptions to the tax credit not allowed on Services on which input tax adjustment is barred under provincial law
(Services at a reduced rate or under reverse charge mode are barred in
provincial laws) as per section 8?

Answer 21

input is allowed on reduced rate services of IT/Software (5%) in Islamabad and services subject to the rate of 15% (transport services) in Punjab.

In Sindh, registered service recipient is allowed to claim input tax on invoice issued by a Foreign Service provider.

Question 22

what are the exceptions to the tax credit not allowed on Goods used/permanently attached to immoveable property such as
construct materials, paints, sanitary fittings, pipes, wires, cables as per section 8?

Answer 22

1. Pre-fabricated building 2. Above goods acquired for direct use in production 3. Above goods acquired for sale/resale.

Question 23

what are the exceptions to the tax credit not allowed on Vehicles, vehicle parts, furniture, furnishings, electric and gas
appliances, office equipment as per section 8?

Answer 23

1. Fork lifter
2. electronic cash register
3. Above goods acquired for sale/resale.

Question 24

Is there retrospection of input tax credit disallowed due to person from which purchases were made got blacklisted or suspended?

Answer 24

Yes, In case of suspension input from date of suspension is not allowed.

But in case of blacklisting input against invoices even prior to blacklisting is also disallowed.

Question 25

what circumstances can make a registered person non active tax payer?

Answer 25

A person can become non-active if

1. his registration is suspended/ he is blacklisted,
2. fails to file sales tax return for two
   consecutive months,
3. fails to file income tax return by due date
4. fails to file annual withholding statement or two consecutive quarterly
   withholding statements.

Note 2: In case of purchases from non-active registered person, sales tax @ 5% of the value should be withheld.