How to Claim Input Tax in Goods and Services Contracts in Pakistan

If you’re a Pakistani business owner or taxpayer, handling sales tax across federal and provincial jurisdictions can be a complex challenge—especially when your contract involves both goods and services. While goods are primarily regulated under the Federal Board of Revenue (FBR), services fall under the provincial revenue authorities such as PRA, SRB, KPRA, BRA, or ICT.

In contracts that involve both goods and services—such as construction, project-based supplies, or infrastructure developments—understanding how and where to claim input tax becomes crucial for compliance and for avoiding loss of legitimate tax credits.

This article provides a simplified and actionable guide to help you understand and claim input tax on mixed contracts under Pakistan’s tax system.

Federal vs Provincial Tax Jurisdictions

In Pakistan:

• Goods are subject to sales tax under the FBR.
• Services are subject to provincial sales tax, which is based on the destination of service delivery.

When a project includes both, such as supplying equipment and providing installation services, the invoice may contain both federal and provincial tax elements. This is where coordination between systems becomes important.

Integrated Invoices and the CREST System

To manage this complexity, the FBR and provincial authorities utilize a Centralized Risk-based Evaluation of Sales Tax (CREST) system.

This system integrates the goods and services invoices so that an invoice entered into the federal portal, mentioning provincial taxes, is also visible to the respective provincial tax authority. This integration ensures that cross-authority tax input claims are traceable and verifiable.

Prerequisites for Claiming Input Tax in Mixed Contracts

To claim input tax efficiently, follow these steps carefully:

1. Sales Tax Invoices Must Be Timely

You can only claim input tax for invoices that are not older than six months. Make sure to process all eligible invoices within this period, or the claim may lapse.

2. Choose Only One Tax Authority

You may claim an invoice only once, either under the FBR (federal) or the relevant provincial authority—not both. Select the correct jurisdiction based on the nature of supply and the location of service delivery.

3. Mention the Destination Province at Entry

At the time of entering the invoice into the system, you must select the destination province where the service has been delivered or is to be claimed. Failing to select the correct destination may lead to mismatches or rejection.

4. Attach a Copy of the Invoice

For the input tax claim to be accepted, a copy of the relevant invoice must be attached when filing the return. This supports the claim’s authenticity and helps during audits or reconciliations.

Example Scenario

Let’s say your business sells and installs air-conditioning units. The supply of the unit (goods) is subject to federal sales tax, while the installation service falls under the provincial jurisdiction where the service is performed (e.g., Punjab).

• You raise a single invoice covering both goods and services.
• You enter it in the FBR’s portal but mention Punjab as the destination.
• The provincial authority (PRA) can now see and verify the invoice via CREST.
• You then decide whether to claim the input tax on goods via FBR or the input tax on services via PRA, but not both.

Conclusion

While handling mixed contracts involving both goods and services can be administratively demanding, the CREST system provides a level of integration between federal and provincial systems that makes it manageable—if done correctly.

To successfully claim input tax, make sure you:

• Act within the six-month window.
• Select the correct jurisdiction.
• Avoid double-claiming.
• Always attach valid invoices.

For larger projects or complicated transactions, it’s recommended to consult with a tax professional or seek advice from your relevant Regional Tax Office (RTO) or provincial authority to ensure full compliance and avoid rejection of input tax claims.