The Federal Board of Revenue has recently introduced amendments in the Sales Tax Rules, 2006 through the issuance of SRO 350(I)/2024 dated March 07, 2024. This newly introduced notification has taken the entire business community of Pakistan by storm.

Creating hurdles or as the regulator may like to call it “regulatory checks” in the process of filing monthly sales tax returns, this notification has slowed down the business cycle significantly.

In summary, the above referred SRO has introduced the following amendments:

• • Declaration of capital and liabilities by an individual, Association of Persons and a single member company, not being a manufacturer.

• • Restricting sales of the above referred persons to the extent of five times the amounts declared.

• • Requirement of bio metric verification of the above referred persons during the month of July every year.

• • Introduction of the concept of a “provisional sales tax return” and disallowance of input tax where the supplier has not filed its sales tax return by the end of the month in which the sales tax return is due.

• • Disallowance of the credit of sales tax withheld if the corresponding sales has not been declared.

The above referred SRO is a classic example of lack of planning and foresight as the said notification required further clarificatory documents to be issued in an attempt to streamline its compliance.

Previously, the persons falling under the ambit of this SRO were only required to declare business capital and their sale was being restricted to five times the said amount. However, it was argued by the business community that a business is not only run through capital invested, rather, the creditors or liabilities of a business have an important role to play in the operations of a business. Therefore, a further amendment was promulgated vide SRO 644(I)/2024 dated May 07, 2024 whereby it was clarified that the sale would be restricted to the extent of five times the sum of capital as well as liabilities.

In addition to the above, SRO 350(I)/2024 required an individual, association of persons and a single member company, other than a manufacturer to have its bio metric verification done every year during the month of July. This requirement was introduced in order to counter fake NTNs and NTNs which were operational in the name of those persons who had passed away or no longer carrying out business.

However, this mechanism had not been coordinated with NADRA; errors in the bio metric verification were being faced by those persons who had attempted to make compliance. It would have been fruitful if this matter was already coordinated and streamlined with the relevant authorities so that compliance could have been made.

Thereafter, the due date of bio metric verification was extended upto August 31, 2024 vide the Federal Board of Revenue’s circular dated July 30, 2024.

Lastly, the notification introduced the concept of a “provisional sales tax return” i.e. the sales tax return of a registered person would be taken as a provisional sales tax return until the suppliers of the said person have filed its sales tax return by the last date of the month in which it is due.

If the supplier of the registered person fails to file its sales tax return of a particular month then the input tax claim relating to those invoices of the supplier (relating to the said month) would be deleted and the tax liability of the registered person would be computed without allowing those input tax claims.

The above amendment created chaos amongst the business community and brought everything to a halt as several sales tax returns in Pakistan could not be submitted. Moreover, huge amounts of payables were being calculated for those taxpayers who had originally forecasted that they would adjust their input tax claims.

Subsequently, having no other choice, certain taxpayers approached the Honorable Lahore High Court with the plea to grant interim relief with regards to the operations of SRO 350(I)/2024. Thereafter, the Honorable Lahore High Court was pleased to grant interim stay and instructed the Federal Board of Revenue to accept the submission of the sales tax returns of the petitioners without incorporating the amendments introduced through the above referred SRO.

Since inception amendments have been introduced in Pakistan’s tax laws without taking on board relevant stakeholders. Thus, resulting in matters going into unnecessary litigation and no fruitful outcome being achieved. The same story has been regarding super tax under Section 4C, tax on deemed income under Section 7E and Capital Value tax.

Taking stakeholders on board would save precious time and resources for the Federal Government and increase the trust levels amongst the people. Moreover, it would create a more business friendly culture in the Country which would attract foreign direct investment. Whereas currently, a foreign investor plans out his investment in Pakistan and prepares feasibility studies while incorporating tax costs in his budgets and estimates as per the law applicable.

However, by the time an investment is made and the business is commenced, the tax laws which have taken a complete 180 degrees flip as compared to those applicable at the time of decision making. This shatters the confidence of investors and stakeholders and is a crucial issue which needs to be addressed, otherwise the increase in foreign direct investment and Gross Domestic Product may become out of reach.