The Finance Bill 2022 proposes several significant changes in the Sales Tax regime in Pakistan. These changes include the modification of the definition of Tier 1 retailers, the imposition of further tax on non-active taxpayers, and the abolition of the restriction in the claim of input tax. Additionally, the claim of admissible input tax will be restricted to 90% of the output tax, and the requirements of a ‘Tax invoice’ will be modified. In this article, we will discuss these changes in detail.
- Modification of the Definition of Tier 1 Retailers
The Finance Bill 2022 proposes to modify the definition of Tier 1 retailers to include jewelers. As per the proposed change, a person engaged in the supply of articles of jewelry or parts thereof, made of precious metal or metal clad with precious metal, will be considered a Tier 1 retailer. This change will have an impact on the taxation of jewelers in Pakistan.
- Imposition of Further Tax on Non-active Taxpayers
The Finance Bill 2022 proposes to impose further tax on persons who are not active taxpayers. This proposal aims to encourage people to become active taxpayers and discourage the practice of tax evasion.
- Abolition of the Restriction in the Claim of Input Tax
The Finance Bill 2022 proposes to abolish the restriction in the claim of input tax on goods and services attributable to supplies made to unregistered persons on a pro-rata basis for sales invoices not bearing NTN/CNIC of the recipient. The restriction was introduced through the Finance Bill 2019 to document the economy growth and encourage registration in sales tax. However, this proposal has faced criticism for being counterproductive and discouraging unregistered persons from joining the tax net.
- Restriction on Claim of Admissible Input Tax
The Finance Bill 2022 proposes to restrict the claim of admissible input tax to 90% of the output tax for a tax period under section 8B of the Sales Tax Act, with certain exceptions. This proposal will have an impact on corporate entities, as the Finance Act 2021 excluded public limited companies listed on the Pakistan Stock Exchange from this restriction. The proposed change will withdraw this benefit and may discourage corporate entities operating in an organized sector.
- Modification of Requirements of a ‘Tax Invoice’
The Finance Bill 2022 proposes to modify the requirements of a ‘Tax invoice’ by removing the need to include the particulars of NIC/NTN of unregistered persons. This change will simplify the invoicing process and reduce the burden on taxpayers.
The proposed changes in Sales Tax under the Finance Bill 2022 will have an impact on businesses and taxpayers in Pakistan. While some changes are intended to discourage tax evasion and encourage active taxpayers, others have faced criticism for being counterproductive and discouraging unregistered persons from joining the tax net. The proposed changes require careful consideration and implementation to ensure a balanced approach to Sales Tax in Pakistan.