Karachi, January 18, 2020: The FBR issued Sales Tax General Order [STGO] 01 of 2020 dated 16th January 2020, whereby it has clarified the anomalies surfaced due to amendments made in Section 73 of STA through Tax Laws (Second Amendment) Ordinance 2019, the main purpose of which was to bring major distributors/retailers into documented regime.
Before commenting on the clarification issued by FBR, the relevant amendments in Section 73 is reproduced below for ready reference:
“(4) A registered manufacturer shall make all taxable supplies to a person who has obtained registration under this Act excluding supplies not exceeding a value of one hundred million Rupees in a financial year and ten million Rupees in a month, failing which the supplier shall not be entitled to claim credit adjustment or deduction of input tax as attributable to such excess supplies to unregistered person.” Considering the implication of the phrase of “unregistered person”.
From the above the following anomalies were had arisen and now clarified by STGO:
A. The phrase “unregistered person” used above is a singular term which implies that the restriction is applicable to single unregistered person instead of total sales to all unregistered person. We had also taken this view in our commentary issued on Tax Laws (Second Amendment) Ordinance 2019 dated 31st December 2019 (you can access on link).
Now FBR has confirmed our opinion in STGO by clarifying that threshold of Rs 10 million per month/ 100 million per year is applicable on goods supplied to one specific person by the registered person.
However, we reiterate our instance that this contradicts with the very purpose of amendment i.e. to bring unregistered distributors into documented regime, as CNICs of relatives/employees may be provided by buyer to avoid threshold.
B. The above had also rose question whether all unregistered persons (including various government authorities, armed forces, hospitals, Universities, Charities, EPZ entities etc. will be affected or only those unregistered persons will be affected who were required to be registered.
The FBR has clarified that it applies only to those unregistered persons who are engaged in supply of taxable goods, supplies to Federal / provincial / local Government departments, authorities, etc. not engaged in making taxable supplies, Foreign Missions, diplomats and privileged persons, will not be considered for the limit.
The privileged person has been defined in Sales Tax Rules as a person covered by United Nations (Privileges and Immunities) Act, 1948 (XX of 1948) and includes persons entitled to concessions and exemptions under the Model Rules for customs concessions to privileged personnel arriving under various foreign aid programs or projects issued by the Board under C. No. 10 (34)-Cus- III/58, dated the 18th April, 1963.
C. There are some industries such as local automotive manufacturers of truck and buses, steel and cement etc. in which manufacturers sell directly to customers against CNIC/NTN) and the amendment also requires sales tax registration of these customers thereby halting the sales of these industries. The above clarification by FBR has also excluded these unregistered end users for the purpose of threshold.
