Govt to allow 100pc input tax adjustment to ease liquidity crunch

KARACHI: The government is likely to allow manufacturers and exporters to claim 100 percent adjustment/refund against the input tax in the upcoming annual budget, well-placed sources said on Tuesday.

Sources told The News that the government would do away with the section 8B of Sales Tax Act in the upcoming federal budget to address liquidity issues of industrialists and exporters.

Under the section 8B, a registered person is not allowed to adjust input tax in excess of 90 percent of the output tax for that tax period.

“With the omission of section 8B (adjustable Input Tax) of the Sales Tax Act, manufacturers and exporters would be able to claim 100 percent adjustment/refund against the input tax,” a source said.

“Section 8B of the Act was legislated to ensure refund of admissible claims of input tax. The refund is given up to 90 percent allowing the registered person to claim refund of 10 percent in the next tax period so that the registered person is discouraged from claiming excessive adjustment”.

This provision was added in the law to discourage use of flying invoices by the manufacturers/exporters to claim adjustment.

Presently, businessmen can only claim adjustment/refund of 90 percent of the input tax in a year, rest of the 10 percent is carried forward, thus a sizeable chunk remains stuck with the government. This is in addition to the stuck-up refund claims.

Trade bodies across the country have been urging government to amend section-8B of Sales Tax Act 1990 for allowing 100 percent adjustment of input tax against output tax instead of the existing 90 percent.

“Depriving registered persons of the refund or adjustment of 100 percent input tax against output tax is not justified, especially at a time when the business sector is struggling for survival due to the impact of the Covid-19 pandemic,” Islamabad Chamber of Commerce and Industry said in a statement.

Government allowed registered persons to adjust input tax paid on goods and services purchased from local market, imported from abroad and goods purchased in auction during a tax period, however, all registered persons have not been allowed to adjust input tax in excess of 90 percent of the output tax for that tax period, which is an act of injustice with them.

Government vide SRO1190 (1) of 2019 allowed 100 percent adjustment of input tax against output tax to some sectors. However, due to lockdowns to curb the spread of coronavirus pandemic, businesses of almost all sectors of the economy have incurred huge losses and keeping in view their current financial difficulties, the government should allow adjustment of input tax against 100 percent output tax to ease their problems.