Sales reports: No monthly GST rebate option available to pharma companies, claims KTBA

KARACHI: No monthly sales tax reporting option is available for reporting pharmaceutical industry sales. This was stated by the Karachi Tax Bar Association in a letter sent to the Chairman of the FBR.

The KTBA said that serial number 19 of the fifth schedule of the law, containing “substances registered as drugs”, was omitted and the new serial numbers. 81 and 82 were introduced in table 1 of the eighth schedule of the law through the finance law of 2022.

After the induction of the new series – 81 and 82, the drug manufacturer/importer must charge and pay 1% sales tax, which would constitute a final discharge of his sales tax liability in the whole of the pharmaceutical supply chain. This clearly implies that if a manufacturer or importer paid the above 1% sales tax on the supply or importation of finished goods (drugs), respectively, no sales tax would be applicable on the subsequent supply of these pharmaceuticals, KTBA said. .

Following the recent changes, the pharmaceutical industry is faced with practical problems.

  • Reference to Fifth Schedule Act Serial Number 19 does not appear when reporting Sales Returns/Cancellations through Schedule C Credit/Debit Notes (uploaded through a management system bills). Therefore, sales declarations relating to the period from January 2022 to June 2022 made at 0% are not declared in the tax periods of July 2022 and August 2.

  • The option to report exempt sales made by pharmaceutical distributors is not available on Schedule C (uploaded via an invoice management system) for the July 2022 tax period, due to which pharmaceutical distributors are not unable to file their monthly sales tax returns.

KTBA asked the FBR Chairman to intervene and tolerate the deadline for filing monthly sales tax returns for the pharmaceutical industry until the issue is resolved.

Pharmaceutical raw materials: No input tax adjustment after 1 GST payment: FBR

In another letter sent to the President, KTBA said a 20% tax was imposed on deemed income calculated at five 5% of the fair market value of a fixed asset located in Pakistan. The fair market value was defined in Article 68 of the Ordinance and was also notified by the FBR through a number of SROs.

Therefore, it is recommended that such an assessment table be incorporated into the final processing of the tax return, after which the calculation of tax under Section 7E would be calculated automatically by the IRIS system based on the description of the assets incorporated by the taxpayer in his declaration of assets.

This would ensure the correct calculation of tax under Section 7E of the Ordinance.

He said taxpayers and the legal fraternity are concerned about the removal of the previously available tab in the return to request the adjustment of prior refunds against current year tax payable. The adjustment of the refund against the tax payable is a basic right of a taxpayer and the adjustment of the refund has always been provided for in the tax return forms without any dispute, KTBA argued.

It has been observed that the IRIS web portal currently calculates and allocates income associated with the provisions of Section 153 to certain predefined and programmed formulas, resulting in higher taxation on the same income. Therefore, it is suggested that such taxpayers be allowed to calculate and assign their income based on the facts of their case instead of prefixed tabs. Relevant fields for entering numbers should be relaxed and opened up, the letter says.

He said the tax payable by a person other than a bank and an insurance company on profits from debt/interest income from government securities is 15%, which will be the final tax as contemplated under Section 20 of Part III of the Second Schedule to the Order. However, said clause has been omitted by the 2022 finance law, which will be applicable from tax year 2023. Despite this fact, IRIS has been able to calculate the tax on these profits on the debt / interest income according to the normal slab rate, thus wrongly applying the changes made by the 2022 finance law retrospectively in the TY 2022 as well.

Currently, IRIS on the web portal does not support the initial depreciation of 25%, allowed when purchasing plant and machinery under the provisions of Article 23, resulting in an incorrect calculation of the tax depreciation.

He said that the declaration of assets for the tax year 2022 is pre-populated with the opening balance of the closing balance of last year of the original declaration of assets filed by the taxpayer without taking into account any revised declaration of assets filed by the taxpayer. Consequently, taxpayers who had revised their last declaration of assets are faced with unnecessary and avoidable hassles.

Copyright Business Recorder, 2022

Sallie R. Loera