Important Update for Small Businesses: Changes in Sales Tax Registration and Filing

The Federal Board of Revenue (FBR) has issued a new Statutory Regulatory Order (SRO 350(I)/2024), also known as Sro 350 Sales Tax Pakistan, amending the Sales Tax Rules, 2006. This update affects how individuals, associations, and single-shareholder companies register and file sales tax returns in Pakistan. Here's a breakdown of the key changes:

New Registration Requirements for Single-Shareholder Businesses:

• Businesses with only one shareholder or member (excluding manufacturers) must now submit a balance sheet to register. This document should show their business capital and corresponding assets, along with any partner information and their percentage ownership (if applicable).
• Existing single-shareholder businesses not fulfilling this requirement within 30 days of the rule's implementation will need Commissioner approval through IRIS (an online tax portal) to file returns electronically.

Biometric Verification:

• Individuals, association members, and directors of single-shareholder companies (excluding manufacturers) must now visit a National Database and Registration Authority (NADRA) e-Sahulat center for biometric re-verification annually in July. Failure to do so will require Commissioner approval for electronic return filing.

Scrutiny of Sales vs. Business Capital:

• The FBR will now compare the sales declared in tax returns by single-shareholder businesses (excluding manufacturers) to their reported business capital. If the sales are five times higher than the capital, electronic filing will require prior Commissioner authorization.

Impact on Return Filing:

• Buyer tax returns will be considered provisional in IRIS until the corresponding seller files their return for the same period.
• If a seller fails to file a return by the due date, the buyer's return will be adjusted, removing invoices from the non-filing seller. The buyer's tax liability will be calculated based on the remaining invoices.
• Sellers who file their returns and pay tax by the due date will ensure the validity of the buyer's provisional return with the claimed input tax credit.

Changes in Crediting Withheld Tax:

• If a registered person declares withheld tax from a withholding agent but doesn't claim the corresponding sales in their return, the credit for withheld tax and reduction in output tax will be disallowed.

Other Amendments:

• The process for claiming previously disallowed input tax credit has been simplified.
• Suppliers no longer need to declare their supplies or file monthly returns for a registered person to claim input tax credit.
• The issuance of credit notes now requires prior Commissioner approval.

Overall, these changes aim to increase transparency and prevent tax evasion.?

This article was published at New Sales Tax Registration and Filing Requirements for Small Businesses in Pakistan (SRO 350(I)/2024)