Wednesday, 30 November 2022
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FBR Introduces Sales Tax Refund Mechanism for Pharmaceuticals Sector

The Federal Board of Revenue (FBR) on Monday introduced mechanism for payment of sales tax refund to pharmaceutical sector.

In order to implement the mechanism the FBR issued SRO 383(I)/2022. The FBR amended Sales Tax Rules, 2006 through the instant SRO.

The government withdrew sales tax exemption on drugs through Finance (Supplementary) Act, 2022 and replaced the exemption with the zero-rated regime.

The FBR said zero-rated regime at import stage is introduced for drugs registered under the Drugs Act, 1976. Pharmaceutical goods and their raw materials were earlier exempt from Sales Tax; as a result, most of the supply chain was undocumented.

This had led to misuse of this facility and revenue leakages. Moreover, the sector had absorbed tax paid on various inputs including packaging material and utilities. These input taxes became part of cost and were passed on to patients. In order to address these issues, pharmaceutical products are made zero rated and any tax paid on their inputs are made refundable.

This measure will bring transparency to the sector and help FBR in documenting the entire supply chain. It will also help the government in controlling and reducing the price of pharmaceutical goods. “In order to process the refund claims of this sector, a refund module on the pattern of FASTER is devised.”

Through the latest SRO, the FBR introduced a new chapter in the sales tax rules, which shall apply to refund claims for the period commencing from 15th day of January, 2022 onwards, as filed by the registered persons engaged in import or supply of zero rated drugs as registered under the Drugs Act, 1976, or medicaments as classified under Chapter 30 of the First Schedule to the Customs Act, 1969 except PCT heading 3005.0000.

Refund Mechanism for Pharma Sector

391. Extent of payment of refund claim.—The total amount of refund paid against the claims filed and processed under this Chapter shall not exceed the lower of the two amounts, namely, the amount of input tax actually consumed in goods as supplied at zero-rated rate, or the amount as per ceiling, if any, determined by the Board, in terms of percentage of value or amount per unit of the quantity as deemed appropriate.

39J. Filing and processing of refund claims.—The data provided in the monthly national sales tax return shall be treated as data in support of refund claim and no separate electronic data shall be required to be provided. The amount specified in column 29 of the return, as prescribed in the form STR-7, shall be considered as amount claimed, once the return has been submitted along with all prescribed annexures thereof:

Provided that the claimant may submit his return without Annex-H and the same may be filed separately at any time but not later than one hundred and twenty days. The date of submission of Annex-H shall be considered as the date of filing of refund claim:

Provided further that the period of one hundred and twenty days, as aforesaid, may be extended for a period not exceeding sixty days, by the Commissioner having jurisdiction, for reasons to be recorded in writing on the basis of an application made by the claimant.

Risk management in refund processing.—After submission of refund claim, in the aforesaid manner, the same shall be processed by risk management system (RMS). Based on the parameters in RMS, a refund claim shall be routed to the processing module referred to as fully automated sales tax e-refund pharma (FASTER Pharma). The claims that do not fulfil RMS parameters for processing through FASTER Pharma module shall be routed for processing under Chapter V.

Processing in FASTER PHARMA module.— The claims routed to FASTER Pharma module shall be electronically processed. The data in the refund claim shall be scrutinized and verified by the system and the payable refund amount shall be determined on the basis of RMS quality check of input consumed in supplies. The refund payment order (RPO) of the amount found admissible shall be generated and the same shall be electronically communicated direct to the State Bank of Pakistan, within seventy-two hours of submission of claim, for onward advice to the respective banks for credit into the notified account of the claimant.

Processing in STARR module.— The part of the refund claim that is not verified or not found admissible shall be subjected to system validation checks every week and RPO shall be generated for the amount found valid during each validation check. After every validation process, the information regarding RPO generated, if any, as well as the objections shall be communicated by the system to the refund claimant and also to the concerned IRS field formation for information. RPO so generated shall be communicated to the State Bank of Pakistan for payment in the aforesaid manner. After eight validation checks, including the initial one, if any amount still remains un-cleared, the same shall then be processed under STARR module as referred to in Chapter V.

39N. Miscellaneous.—The provisions relating to transmission of bank advice to State Bank post-refund scrutiny, supportive documents, responsibility of claimants and action in respect of inadmissible claims, as specified in Chapter V, shall, mutatis mutandis, be applicable to refund claims filed and processed under this Chapter:

Provided, however, that supportive documents shall only be presented by the claimant, if so required by the officer-in-charge of post-refund security, with the approval of Commissioner concerned.”

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