SARDAR KHAN & CO | Sales Tax Refund Services - Pakistan

A sales tax refund refers to the reimbursement of excess tax paid by a registered person to the tax authorities. A registered person may apply to the relevant tax authorities for a refund of overpaid sales tax within one year from the date of payment. If the refund arises due to a decision or order, the one-year period shall start from the date of such decision.

The regulations, laws, and procedures for obtaining refunds of overpaid sales tax amounts are well known to the specialists at SARDAR KHAN & CO. The problem of reimbursement is covered by the regulations in Sec 66 of the Sales Tax Act, 1990, which specifies that claims must be made within a year. Unless the claim is submitted within one year of the payment date, there will be no reimbursement of taxes that are alleged to have been paid or overpaid due to inadvertence, error, or misinterpretation, or refunds due to input adjustments not claimed during the applicable tax period. The Commissioner may, upon being satisfied that the input tax is admissible, allow the registered person to adjust such input tax in the specified tax period, subject to the other limitation where the registered person did not deduct input tax within the relevant tax period.

Understanding the Refund Process in Pakistan

If the input tax paid exceeds the output tax, the excess amount shall be refunded within 45 days of filing the refund application by the registered person on taxable purchases exceeds the output tax due to zero-rated domestic supplies or exports made during that tax period.

If the claimant has submitted the monthly sales tax return along with all required information and supporting documentation, it will be considered a refund request. No refund will be considered if the claimant does not submit the claim within 60 days of completing the return.

Eligibility and Who Can Claim

A refund may be requested by any of the registered individuals listed below:

• Commercial exporters and registered producers who deal with zero-rate supplies or a portion of them.

• Individuals who have registered and assert an excessive input amount that cannot be used in three months.

• Registered individuals who buy tax-paid inputs to use in the production of zero-rated products.

• If a payment is made in response to a department’s request, but the competent authority later reverses the demand.

The Regional Tax Office (RTO) or Large Taxpayer Unit (LTU), depending on the situation, is the organisation responsible for providing refunds. The FASTER SYSTEM now allows registered individuals to request a refund for sales tax.

The taxpayers are urged to update their IRIS profile as the Centralised System for online payment of Sales Tax/FED refunds has been developed. Taxpayers are advised to act accordingly as soon as possible in order to take advantage of the electronic transfer option.

Legal Framework for Sales Tax Refunds

To receive a return of Sales Tax paid in excess, a taxpayer (RP) should be familiar with the requirements of Sales Tax Legislation, Rules and Procedures, SROs, Rulings, and Instructions, as detailed below:

• Sec. 10 of the Sales Tax Act, 1990

• Sec. 66 of the Sales Tax Act, 1990

• Sec. 67 of the Sales Tax Act, 1990

• Chapter V (Refund) of the Sales Tax Rules, 2006 (notified vide SRO 555(I)/2006 dated 05-06-2006)

• SROs, STGS, Circulars, Rulings and Clarifications

Timeline and Processing of Refunds

When the refund is due as a result of any choice or ruling made by an Inland Revenue officer, a Court, or the Tribunal, the one-year time limit shall begin from the date of the judgment or decision. The claim submitted in accordance with Sec. 66 will be processed within 90 days after the date of submission. A Delayed Refund is covered by the terms of Sec. 67. If a refund owed under Sec. 10 is not given within the time period stated in that regard, the claimant will get, in addition to the amount of the refund due to him, an additional sum equal to KIBOR per year of the amount due from the day after the expiration of the time period mentioned above until the day before the refund is paid. 

Refund via Sales Tax Bonds

Under Sec. 67-A, which is being issued by FBR Refund Settlement Company Limited, which is licensed by the SECP, the reimbursement of sales tax is also payable through sales tax bonds. These bonds are offered in place of the refund sum under the Securities Act, 2015. The maturity date for these bonds is three years, and the interest rate is a simple 10%. The bonds are not subject to required Zakat deductions.

Refund Through Input Tax Adjustment

Input tax in excess of that permitted by subsection (1) of S. 8B, as well as excess input tax against supplies other than zero-rated or export, may be rolled over to the following tax period. The Sales Tax Act’s section 62 permits drawback on re-export when any item that has been brought into Pakistan and on which tax has been paid on importation is re-exported outside of the country. In such cases, seven to eight per cent of the tax is payable as drawback, unless otherwise specified, and the Customs Act, 1969’s regulations about the drawback of customs duties apply to such tax to the extent that they apply to that Act. The re-export must occur within two years of the import date. The duration may be extended by FBR for a year. Additionally, under Sections 63 and 64 of the Sales Tax Act, FBR has the authority to modify the terms and conditions of the drawback on commodities put to use between importation and re-exportation. Within a year, the claim must be submitted.

Customs Duty & Export-Oriented Refunds

Exemption of Customs Duty, Sales Tax, Federal Excise Duty and Income Tax to a licensee of an Export Oriented Unit can be made under Rule 11 of the Export Oriented Units and Small and Medium Enterprises Rules, 2008, in case the input or output goods are damaged or destroyed or rendered unsuitable for consumption or sale. Subrules 7 and 8 of the Duty and tax remission Under export rules, 2001, also give a chance of remission of duties and taxes in case of destruction or damage of goods, and they are unfit to be consumed or sold.

The process of refund payment is covered in Chapter V of the 2006 Sales Tax Rules. Rules 26, 28, 29, 30, 34, 38, and 39A pertain to the application, filing, examination, processing, sanction, and payment of refund claims, as well as the refund of excessive input tax and zero-rated supplies, and the supporting documentation required. Rule 26A addresses the quick processing and payment of refunds. 

Special Rules & Procedures

The unique procedure for processing refund claims submitted by those involved in producing zero-rated Ginned Cotton supply is provided in Chapter IX of The Sales Tax Special Procedures Rules, 2007.

The Board has the power to approve the full or partial refund of the input tax paid by the individuals registered in AJK, who are involved in manufacturing zero-rated items, on any items purchased or imported into Pakistan in accordance with the requirements of Sec. 61A of the Sales Tax Act. Such circumstances are covered by the Payment of Sales Tax to People Registered in AJK Rules, 2008. Under Section 61A of the Sales Tax Act, the aforementioned rules apply to the forms for the repayment claim made by the Pakistani government and the sales tax repayment order. The Refund Claims of Recognised Agricultural Tractor Manufacturers Rules, 2012, outline the process for handling refund claims made by these manufacturers. The process for processing the adjustment of sales tax due on fertilisers is included in the Special Procedure for Adjustment of Sales Tax Due on Fertilisers Rules, 2015.

Claim your overpaid sales tax in Pakistan with expert guidance from SARDAR KHAN & CO. Contact our specialists today to ensure fast, accurate, and hassle-free processing of your refund.