SRO 350: FBR Takes Aim at Fake Invoices, Protects Buyers with New Rule

Federal Board of Revenue (FBR) recently issued SRO 350 of 2024 (dated March 7th, 2024) to combat fake input tax invoices. This article explains the new rule and its implications for businesses.

The Problem:

Fake invoices inflate input tax credit claims, allowing businesses to evade taxes. This disrupts fair competition and reduces government revenue.

The New Rule:

Under Rule 18(B) of SRO 350 Sales Tax, if a seller fails to file their monthly tax return by the due date (typically within 12 days after the month-end), the buyer's corresponding purchase invoice will be automatically deleted from the system. This means the buyer loses the ability to claim input tax credit on that purchase.

Example:

• Company A sells goods worth Rs.1 lakh to Company B, charging Rs.18,000 GST.
• Company B claims Rs.1 lakh as input tax credit.
• If Company A fails to file its tax return for January by February 28th (or within the grace period), Company B's purchase invoice for Rs.1 lakh will be deleted.
• Company B loses the ability to claim Rs.18,000 input tax credit.

Impacts of the New Rule:

• Protects Buyers:?This rule discourages sellers from issuing fake invoices, as buyers are wary of losing input tax credit if the seller doesn't file their return.
• Reduces Tax Evasion:?Businesses are less likely to engage in fake invoice schemes due to the increased risk of detection.
• Improved Revenue Collection:?By curbing fake invoices, FBR expects to collect more tax revenue.

Risk Mitigation for Buyers:

• Verify Seller Registration:?Ensure the seller has a valid National Tax Number (NTN) and is registered with FBR.
• Request Tax Return Copies:?For regular suppliers, request copies of their filed tax returns as proof of compliance.
• Staggered Payments:?Consider holding back a portion of the payment (e.g., the equivalent of input tax) until the seller provides proof of tax return filing.

Conclusion:

FBR's new rule aims to deter fake invoices and improve tax compliance. Businesses, especially buyers, should be aware of this regulation and take necessary precautions to manage their tax liabilities effectively.

This article was published at FBR SRO 350 of Sales Tax by TaxationPk