Understanding Input Tax Credit Restrictions in Pakistan

The Sales Tax Act, 1990, outlines specific restrictions on the input tax credit that registered persons can claim. This article provides a comprehensive overview of these restrictions and their implications for taxpayers.

Key Restrictions:

• Non-Taxable Supplies: Input tax cannot be claimed on goods or services used for non-taxable supplies.
• Specified Goods and Services: The Federal Government may specify certain goods or services for which input tax credit is not allowed.
• Non-Deposited Sales Tax: Input tax cannot be claimed on goods or services where the supplier has not deposited the sales tax with the government.
• Discrepancies in CREST: Input tax cannot be claimed if there are discrepancies in the CREST system or if the input tax is not verifiable in the supply chain.
• Fake Invoices: Input tax is not allowed on purchases made using fake invoices.
• Unregistered Suppliers: Input tax cannot be claimed on purchases from unregistered suppliers.
• Personal or Non-Business Consumption: Input tax cannot be claimed on goods or services acquired for personal or non-business use.
• Immovable Property: Input tax cannot be claimed on goods used in or attached to immovable property, except for certain specified items.
• Vehicles and Appliances: Input tax cannot be claimed on vehicles, parts of vehicles, electrical and gas appliances, furniture, office equipment (excluding electronic cash registers), unless acquired for sale or resale.
• Services Barred by Provincial Laws: Input tax cannot be claimed on services where input tax adjustment is barred under provincial sales tax laws.
• Agricultural Machinery and Equipment: Input tax is subject to a 7% rate on agricultural machinery and equipment specified in the Eighth Schedule.
• Undeclared Supplies: Input tax cannot be claimed on goods or services that the supplier has not declared in their return or has not paid the due tax.

Additional Considerations:

• Registered Persons: Only registered persons are eligible to claim input tax credit.
• Proportionate Credit: If a registered person deals in both taxable and non-taxable supplies, they can claim input tax credit only in proportion to the taxable supplies.
• Fixed Tax Payers: Persons who paid fixed tax under previous provisions of the Act are generally not eligible for input tax credit.
• Government Notifications: The FBR may specify additional goods or services for which input tax credit is not allowed through notifications.

This article was published at When Input Tax Credit Can not be Claimed?