FBR to Issue Exclusion Certificates to Tier-I Retailers

The Federal Board of Revenue (FBR) has decided to issue ‘exclusion certificates’ to the Tier-I retailers (big retail outlets) to restore their 100 percent input tax adjustment facility by implementing an automated system.

Through a sales tax general order (STGO) 17 issued by the FBR on Friday, the procedure for reversal of bar on input tax adjustment by 60 percent (i.e. the exclusion), as provided for in STGO 1 of 2022 has been automated. STGO-I of 2022 is, thus, hereby amended to the extent of reversal of bar on input tax adjustment by 60 percent/issuance of exclusion certificates.

As per the new procedure, a registered person whose adjustable input tax has been reduced by 60% u/s 8B(6) of the Sales Tax Act 1990, by inclusion in STGO, shall file an application for removal of this bar/ for restoration of an input tax adjustment. The application shall be filed through the system (IRIS) by selecting the relevant reason for the exclusion from the purview of the said section, along with any proof/ evidence in support of the application.

For the passing of Order (Exclusion Certificate), once an application is submitted, it shall be examined and an order (exclusion certificate) shall be passed by the concerned Commissioner-1R in the system, after such inquiries and examination of such record, as deemed necessary by him/ her.

In the event of acceptance of the application (i.e. Exclusion Certificate allowed) by the concerned Commissioner-IR, the system shall automatically restore the input tax adjustment as per law.

1. Application accepted by the concerned Commissioner-IR for the reason of “Integration with FBR’s POS system”: Restoration of input tax adjustment shall apply w.e.f. the tax period next following the tax period(s) during which the Tier-1 Retailer remained non-integrated. As already clarified by the Board, the 60% reduction in input tax adjustment (disallowance) shall apply to the tax period in which the Registered Person integrated with FBR’s system, as well as, to the prior tax period(s) during which the Registered Person remained non-integrated or remained partially integrated (i.e. not all the terminals and/ or branches were integrated). Concerned Commissioner-IR, at the time of passing the order in the system, shall provide the date of integration and the system shall restore the input tax adjustment accordingly.
2. Application accepted by the concerned Commissioner-IR for the reason “Not a Tier-1 Retailer as defined u/s 2(43A) of the Sales Tax Act. 1990”: In this scenario, the reduction in input tax adjustment (disallowance) by 60%, shall be reversed w.e.f. from the date this bar was placed on and no tax period shall remain subject to a reduction in input tax adjustment (which was originally placed u/s 8B(6) of the Sales Tax Act, 1990).
3. Rejection of Application (i.e. Exclusion Certificate disallowed): In the event of rejection of the application, this reduction (disallowance) in input tax adjustment shall continue in all subsequent tax periods.

This procedure of automation in the hands of the concerned Commissioner-IR will be effective from May 10, 2022, and cases for restoration of 60 percent reduction (disallowance) of input tax adjustment (excluded cases), as already communicated to Pakistan Revenue Automation Limited (PRAL) by the Board, shall be managed/ implemented in the system by PRAL, FBR’s new procedure added.