ISLAMABAD: Federal Board of Revenue is expected to permit retrospective cross adjustment of sales tax on goods and services levied by the federal and provincial governments from the start of the next fiscal year.
A notification in this regard shall be issued following the Memorandum of Understanding (MoU) among Federal Board of Revenue (FBR), Sindh Revenue Board (SRB) and Punjab Revenue Authority (PRA) at the FBR House.
After being scrutinized by Law and Justice Division, FBR will allow adjustment to the taxpayers retrospectively. As a consequence of the signed MoU, FBR shall issue notification declaring sales tax levied under the Sales Tax Act, 1990 as input tax for the purpose of the said law. The MoU was signed to resolve the issues arising subsequent to the transfer of collection of sales tax on services to the provinces after the Eighteenth Amendment to the Constitution, to facilitate the taxpayers working under the respective federal and provincial sales tax laws, and to create a harmonious and conducive business environment.
Experts said that MoU has been signed between the FBR and SRB on the issue of Cross-Adjustment of sales tax on goods and services levied by the Federal and Provincial Governments respectively. It has been decided to allow taxpayers working under each of these laws to cross-adjust sales tax paid on their inputs (input tax) purchased/ received from taxpayers working under the other law, from the sales tax payable on their supplies/services (output tax) in accordance with the conditions specified in the law.
A person working under the Sales Tax Act, 1990 and making supplies of taxable goods shall be allowed to adjust the sales tax paid by him on taxable services received by him in the course of business from a person working under the Sindh Sales Tax on Services Act, 2011. Conversely, a service provider working under the Sindh Sales Tax on Services Act, 2011 shall be entitled to adjust the sales tax paid by him on taxable goods purchased by him in the course of business from a person working under the Sales Tax Act, 1990. All such adjustments shall, of course, be subject to the relevant conditions and procedure in the respective laws.