FBR makes HS code on sales tax invoice mandatory

KARACHI: The Federal Board of Revenue (FBR) has made it mandatory for traders to ensure that a sales tax invoice bears a Harmonized System (HS) code assigned to a product to claim refunds, official sources said on Saturday.
The FBR has launched HS Code entry system for sales tax invoices to plug the revenue leakages through flying invoices, the sources said.
The HS code is an international nomenclature of goods classification developed by the World Customs Organization and it has been adopted by more than 190 countries. The HS consists of 6-digit codes for all traded goods, which are used to satisfy customs requirements worldwide.
The sources said the codes of Pakistan Customs Tariff (PCT) have been used to ensure that a person should issue an invoice of the same product to another buyer.
The FBR in the past suffered heavy losses through issuance of sales tax refunds on fake and flying invoices.
An official at the Regional Tax Office (RTO) Karachi said the FBR tightened the audit and monitoring of sales tax refunds and input adjustment on the fake invoices. “The registered taxpayers started issuing flying invoices to dodge the tax authorities for obtaining illegal input adjustment,” the official said.
The official explained that in the past fake invoices were being issued by a registered person to another registered persons but mis-declaring the goods as a persons in textile sector was issuing invoice for steel sector.
“However, after the imposition of HS Codes for goods the issuance of flying invoices will be curtailed,” the official said.
The system has been introduced to FBR’s in-house online software Integrated Information Risk System (IRIS), which allowed buyers and sellers to match the invoice for claiming input or refunds in sales tax.
The sources said that the FBR was going to an integrated system under which all the taxes, including customs duty would be recorded on the online system.
An official at the Large Taxpayers Unit (LTU) Karachi said that Customs Chapter 1-99 had been used for the codes but only main headings had been used. “There is still room for flying invoices as sub-headings are not taken for the issuance of invoices,” the official said.
During the past three years, the FBR had launched extensive exercise for plugging revenue leakages and is trying to bring changes in the online system to cross match the sales and purchases.
The revenue body launched biometric registration for sales tax registration in June 2015 to ensure the genuine taxpayers because in past fake entities were identified, which incurred heavy losses to the exchequer.
The sources said that the tax authorities were working to bring import data to IRIS. It will bring all commercial importers and manufacturers in to the system and officials of Inland Revenue would able to identify collection of sales tax and federal excise duty at actual rates.
It is learnt that many commercial importers, pretending as manufacturers, were taking advantage of lower tax rates allowed only to manufacturers to encourage exports of the country.