FBR allows refund, input adjustment on packing material

KARACHI: The Federal Board of Revenue (FBR) has allowed tax credit and refunds on raw materials purchased prior to the reintroduction of zero-rated sales tax scheme with the condition that the raw material is used in manufacturing of export goods, sources said on Thursday.

The FBR through a notification clarified the eligibility to avail of the refunds or input adjustment on the goods, especially packing material prior to July 1, 2016, when the government reintroduced zero-rated sales tax for five export sectors.

The FBR said a taxpayer can claim refund or input adjustment if the purchase of packing material was mentioned in the sales tax statement and produce evidence that the raw material consumed for manufacturing of export or zero-rated supplies.

The FBR clarified the issue on a situation raised after the Inland Revenue Offices were rejecting claims of refunds and input adjustments on packing material purchase before July 1, 2016. Under Section 7 of the Sales Tax Act, 1990, a registered person is entitled to deduct input tax paid or payable during a tax period for the purpose of taxable supplies made.

The section also allowed the registered taxpayer to claim refunds if output tax is more than the input tax during a tax period. The issue was discussed at the Federal Board of Revenue headquarters and it was observed that there is a possibility that packing material purchased prior to July 1, 2016 is consumed after this date and refund would accrue.

The FBR also observed: “If a taxpayer claims input tax on packing material purchased prior to zero-rating, such adjustment would be in accordance with the law and the registered person acquires a vested right to such adjustment/deduction.”