Pharmas unable to file monthly sales tax returns, FBR told

KARACHI: Karachi Tax Bar Association (KTBA) has highlighted implications being faced by pharmaceutical companies after amendments introduced in the Sales Tax Act, 1990, saying the pharmas were unable to find an option for monthly sales tax return while reporting their sales.

In a letter written to the Federal Board of Revenue (FBR) chairman, KTBA said the option for reporting exempt sales made by pharmaceutical distributors was not available at Annexure-C (uploaded through invoice management system) for the tax period of July 2022, due to which, pharmaceutical distributors were unable to file their monthly sales tax return.

“Reference of serial No.19 of Fifth Schedule to the Act is not being appeared at the time of declaring sales returns/cancellation through credit/debit notes at Annexure-C. Consequently, sales returns pertaining to January 2022 to June 2022 made at 0 percent, are not being declared in the tax periods of July 2022 and August 2022,” the letter read.

It is pertinent to mention that through the through the Finance Act, 2022, the Serial No.19 of the Fifth Schedule to the Act containing “substances registered as drugs” was omitted and new serial Nos. 81 and 82 were introduced in Table-1 of the Eighth Schedule to the Act.

The serial no. 81 states that tax charged and deposited by a manufacturer or importer, as the case may be, shall be final discharge of tax in the supply chain, and no input tax shall be adjusted by the manufacturer or importer.

Similarly, the 82 informs that Drug Regulatory Authority of Pakistan shall certify item-wise requirement of manufacturers of drugs and active pharmaceutical ingredients and in case of import shall furnish all relevant information to Pakistan Customs Computerized System; and no input tax shall be adjusted by the manufacturer or importer.

According to KTBA, the above amendments suggest that the manufacturer/importer of drugs shall charge and pay 1 percent sales tax, which would be final discharge of their sales tax liability in

the entire supply chain of pharma products.

“This clearly implies that if a manufacturer or an importer has paid the above 1 percent sales tax on supply or import of finished goods (drugs), respectively, then no sales tax would be applicable on the subsequent supply of such pharma goods.”

The tax bar informed that multiple queries had already been raised with the FBR, but received no guideline or explanation from the board.

KTBA requested FBR chairman Asim Ahmad making necessary amendments in IRIS to make pharmaceutical distributors enable to file their monthly sales tax returns in timely manner.