Disallowance of Commission: Commission in respect of Third Schedule Items

Expense-Deductions-not allowed-fbr

Disallowance of Commission

Amendment made through Finance Act 2019, to disallow any expenditure incurred on account of commission in respect of supplies covered by the Third Schedule to the Sales Tax Act, 1990 (STA), if the amount of commission paid exceeds 0.2% of gross amount of supplies in case:

(i) the commission recipient not registered under the Sales Tax Act, 1990; and
(ii) his name is not appearing on Active Taxpayer List (ATL).

Since recipient of commission is not required to be registered under the Sales Tax Act, 1990; a clarificatory amendment made so as to withdraw the condition of registration under STA.

As a result, commission paid or payable in excess of 0.2%, in respect of Third Schedule products, disallowed if recipient of commission is not appearing on ATL.

FBR is expected to clarify that:

  • in case commission exceeds 0.2% threshold, only the excess amount will be
    disallowed; and
  • if the recipient of commission is not appearing on ATL for a period of time, then proportionate commission expense will be disallowed.
commission-tax-deductions-not-allowed
products listed in the Third Schedule of the Sales Tax Act, 1990

Reference of Income Tax Ordinance, 2001 (Section 21(ca) )

Deductions Not Allowed– “21(ca) any amount of commission paid or payable in respect of supply of products listed in the Third Schedule of the Sales Tax Act, 1990, where the amount of commission paid or payable exceeds 0.2 percent of gross amount of supplies thereof unless the person to whom commission paid or payable, as the case may be, is appearing in the active taxpayer list under this Ordinance;

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