Fertilizer firms being issued show-cause notices despite SRO compliance

ISLAMABAD: In spite of due compliance of relevant SRO, the Federal Board of Revenue (FBR)’s field formations are issuing show cause notices to the fertilizer companies for disallowance of input tax on sales to unregistered persons.

In this connection, Dr Muhammad Ashfaq Ahmed, chairman FBR has received a letter of the fertilizer industry on Friday stating the compliance of SRO 1337 (I)/2020 on inadmissibility of input tax/disallowance of business expenditure on sales to unregistered persons.

The SRO 1337 (I)/2020 is related to the registered persons engaged in manufacturing and supply of fertilizer.

Under the SRO, manufacturers in the fertilizer sector were allowed input tax credit/adjustment on supplies made to the un-registered persons, but the manufacturers are bound to provide complete list of the dealers or distributors to the FBR.

When contacted, a leading sales tax expert said that the issue is not limited to the fertilizer sector, disallowance of the input tax has been witnessed in some other documented sectors as well. This needs to be resolved on top priority basis at the level of the Large Taxpayer Offices (LTOs), he added.

The industry has asked the tax authorities to immediately withdraw notices and grant of exemption from input tax inadmissibility/expenditure disallowance on sales to unregistered dealers where compliance has been made under the SRO1337.

FBR reviews fertilizer sector’s tax exemption proposal

The fertilizer industry reaffirmed that it appreciates the efforts of FBR towards documentation of economy and ease of doing business.

It was highlighted that through industry’s cooperation and support, over 1,000 major fertilizer dealers have registered themselves for GST and almost 100 percent are having NTN.

In the same context, the industry wished to draw the chairman’s attention to the issue arising from massive impact of ignorance of the law by concerned officials.

On promulgation of the Tax Laws (Second Amendment) Ordinance, 2019, input GST was disallowed on sales made to unregistered persons exceeding Rs10 million in a month/Rs100 million in a financial year, adding significant exposure for the fertilizer industry.

After due deliberation, the FBR issued a notification (SRO 1337) in December 2020, whereby, exemption would be granted subject to provision of dealers’ information, including bank account etc to the FBR.

The industry had submitted all information pertaining to the dealers except in few cases bank accounts of terminated/one-off customers.

During various meetings, the industry was given an understanding about the exemption being granted in this case after compliance of SRO 1337.

However, it is very disturbing to note that companies have started receiving show cause notices for disallowance of input tax for sales to unregistered persons despite submission of the aforementioned information and a favourable report from concerned field formation.

Copyright Business Recorder, 2022