HS codes on invoices to be mandatory for refund claims

KARACHI: The Federal Board of Revenue (FBR) will make it mandatory for sales tax refund claimants to mention unique codes of trading products on the invoices in a bid to curb fake claims, officials said on Thursday. 

A year ago, the FBR introduced the harmonised system (HS) code and made it compulsory for the sales tax registered persons to mention the codes, while declaring the transactions online. 

The HS code is 8-digit number applicable worldwide to give an identity to a product at the time of the customs clearance.

However, after the resistance from business community and the claim that the local industry is not prepared for such an initiative the requirement was withdrawn, the official said.

“The proposed initiatives will eliminate existing loopholes in the sale and purchase transactions,” said a senior tax official on condition not to be named.

Some years back, the FBR was unable to regulate the sales tax refund claims due to existence of fake and flying invoices, which resulted in issuance of billions of rupees in sales tax refunds.

The FBR tightened the declaration of transactions in sales tax regime during the past two years, following massive irregularities in input adjustments and refunds on fake invoices. 

Presently, registered persons are required to provide sales and purchase details and upload the same with their monthly sales tax statements in order to avail the input adjustment or refunds. 

“The HS code will provide actual declaration instead of showing different products for misusing the schemes available under the sales tax,” said the official.

The official said the new scheme will stop the menace of mis-declaration and fake invoices as well as encourage people to get registered with the tax authorities.

The FBR is allowing various incentives, including exemptions, zero-rating and reduced rates under the sales tax laws.

The official said the transactions under sales tax regime are also regulated under the HS codes for the past several years, but not enforced so far due to various complications and existence of the local products. 

“After the change in dynamics of manufacturing and encouraging environment for the products registration, it is high time to introduce HS code-based declaration,” the official added.

The official said the sales tax registered persons are required to submit their monthly sales tax statements in the two parts from the current fiscal year. 

“In the first part, they are required to upload details of sales and purchases and in the other they are required to submit monthly sales tax statement,” he said.

At present, registered persons are purchasing goods from their suppliers and with understanding they declare items where inputs are admissible, the official said. 

He, citing an example, said a person registered under iron and steel sector sell goods falling under textile goods, which are allowed zero-rated of sales tax against the normal rate of 17 percent. The official said after the introduction of HS codes in invoices such a misuse will be eliminated.