KTBA sheds light on pharmaceutical industry reporting issues

The Karachi Tax Bar Association (KTBA) on Friday highlighted the difficulties faced by the pharmaceutical industry in reporting sales after the implementation of the 2022 Finance Bill.

KTBA Chairman, Syed Rehan Hasan Jafri, in a letter to Asim Ahmad, Chairman of the Federal Board of Revenue (FBR), briefed members of the bar on the implications faced by members of the bar after the changes introduced in the Sales Tax Act 1990 by the Finance Act 2022, in relation to the pharmaceutical industry.

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The KTBA pointed out that under the Finance Act 2022, serial number 19 of the fifth schedule of the act containing “substances registered as drugs” has been omitted and new serial numbers 81 and 82 have been added. introduced in table 1 of the eighth annex to the act.

The full text of the new entries is reproduced below for easy reference:

81. The manufacture or importation of substances registered as drugs under the Drugs Act 1976 will impose a sales tax of 1% subject to the following conditions:

(i) Tax collected and deposited by the manufacturer or importer, as the case may be, serves as a final discharge of tax in the supply chain.

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ii) No input tax will be adjusted by the manufacturer or importer.

82. Active pharmaceutical ingredients, excluding excipients, for the manufacture of medicines registered under the Medicines Act 1976 or raw materials for the basic manufacture of active pharmaceutical ingredients. Sales tax is charged at one percent subject to the following conditions:

i) The DRAP will certify the per item requirements of drug and API manufacturers and, in case of importation, provide all relevant information to the Pakistan Customs computerized system; and

ii) No input tax will be adjusted by the manufacturer or importer.

The KTBA interpreted the changes as the drug manufacturer/importer has to charge and pay 1% sales tax, which would be a definitive discharge of its sales tax liability in the entire drug supply chain. pharmaceutical products.

“This clearly implies that if a manufacturer or importer paid the above 1% sales tax on the supply or importation of finished goods (drugs), respectively, no sales tax would be applicable on the subsequent supply of these pharmaceuticals,” he added.

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The Tax Bar has highlighted the problem facing the pharmaceutical industry due to the recent changes.

Reference to Fifth Schedule Act Serial Number 19 does not appear when reporting Sales Returns/Cancellations through Schedule C Credit/Debit Notes (uploaded through the Management System bills). Therefore, sales declarations relating to the period from January 2022 to June 2022 made at zero percent, are not declared in the tax periods of July 2022 and August 2022.

The option to report exempt sales made by pharmaceutical distributors is not available on Schedule C (uploaded via the invoice management system) for the July 2022 tax period, due to which pharmaceutical distributors are not unable to file their monthly sales tax return.

The Tax Bar has also complained that several queries have already been raised in emails through the FBR Helpline by members of the Bar, but so far no solution or guidelines have been provided. or explained.

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In view of the above, the President of the FBR has been requested to make the necessary changes to IRIS so that pharmaceutical distributors are able to file their monthly sales tax returns in a timely manner.

In the meantime, until the issue outlined above remains unresolved, your office is requested to step in and tolerate the deadline for filing monthly industry sales reports.

The KTBA urged the Chairman of the FBR to grant reparations to the taxpayers linked to the pharmaceutical industry and their distributors, as these taxpayers contribute their fair share to the public treasury as a moral and legal obligation.