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ISLAMABAD: The Federal Board of Revenue (FBR) has suffered a huge revenue loss to the tune of billions for not timely disallowing 60 percent input tax credit to the non-integrated big retailers with the Board’s point of sale (POS) system.

Sources told Business Recorder here on Friday that the FBR chairman has ordered a fact finding inquiry against the concerned tax officials for delay in the implementation of the Sales Tax General Order Number 1 of 2021, Sales Tax General Order Number 2 of 2021, and Sales Tax General Order Number 3.

These three STGOs are related to denial of 60 percent input tax credit to the non-integrated Tier-I retailers. In July 2020, the FBR decided to disallow 60 percent input tax adjustments for those Tier-1 retailers, who will not integrate with the POS software.

However, the Board’s system did not disallow 60 percent input tax adjustments for those Tier-1 retailers, who were not integrated with the POS software.

The FBR will also check whether the estimated revenue loss is Rs14 billion or much less. The FBR’s fact finding inquiry would fix responsibility on the officials, who failed to timely implement the said provision in the law.

The inquiry report would also suggest measures to avoid such incidents in future. Tax authorities are also unhappy that the revenue went down due to the delay in the implementation of the sales tax general order number 1 of 2021, sales tax general order number 2 of 2021, and sales tax general order number 3, the FBR order added.

In this connection, the FBR has issued an office order on the fact finding inquiry on the said issue.

FBR asks big retailers to integrate with PoS system by 10th

According to the sources, the FBR had placed the biggest deterrence of denying 60 percent tax adjustment to the big retailers who failed to integrate with the FBR’s POS system. On the other hand, there was no panic among the big retailers, who were denied tax credit.

Last year, the Board had issued a list of 6,763 big retailers (Tier-1), which were not integrated with the FBR’s POS system and would be denied 60 percent input tax credit in case of non-integration by August 15, 2021.

Later, updated lists were issued through STGO 2 and STGO 3.

The FBR was surprised at how big retailers are not voluntarily coming for integration with the POS system despite denial of the tax adjustment. This happened in July-August period 2020. The same situation continues in September and October 2020. The FBR high ups were unable to understand the reason that the denial of 60 percent input tax credit is a big punishment for the non-integrated retailers but there is no hue and cry among the retailers community. Despite denial of the facility under the law, retailers are not coming forward to get themselves registered with the FBR.

Recently, the FBR’s analysis found that the FBR’s system is not denying tax credit to these big retailers due to technical issues in the system. The availability of the option of “exclusion” in the section 8B (adjustable input tax) of the Sales Tax Act, 1990 has allowed these big retailers to avoid penal action of disallowing 60 percent input tax credit to the non-integrated big retailers. They get themselves excluded from the said provision of denying tax adjustment and remain out of the tax net.

Through Sales Tax General Order No2 of 2021, the FBR again directed the big retailers (Tier-1) to get integrated positively by September 15, 2021 to avoid denial of 60 percent input tax credit.

A list of identified Tier-1 non-Integrated Retailers was placed at the FBR’s web portal.

If these identified Tier-1 Retailers fail to integrate by September 15, 2021, they would be denied credit for input tax equal to 60 percent claimed in the sales tax return for the month of August 2021.

Under the sales tax general order (STGO) 3 of 2021, the Board had issued a list of 1,136 big retailers (Tier-1), which are required to be integrated with the FBR’s POS system and would be denied 60 percent input tax credit in case of non-integration by October 10, 2021.

The board again showed commitment to raise sales tax demand against these big retailers (Tier-1), who are still not integrated with the FBR’s POS system by the deadline of October 10, 2021.

As soon as the issue came to the notice of the tax authorities, the FBR promptly took action and now the system is working smoothly as per law.

From November 2020, the sources claimed that the system has been updated and corrected.

However, now the system has been improved and retailers have been denied 60 percent tax credit through system. Resultantly, the big retailers are now getting themselves registered with the FBR’s POS system to restore input tax credit, the sources added.

Copyright Business Recorder, 2022

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