SHC suspends affidavit requirement for filing sales tax returns

The Sindh High Court (SHC) has temporarily suspended the Federal Board of Revenue's (FBR) requirement for an affidavit to be submitted alongside sales tax returns, following a petition from the business community.

The court's decision came after traders challenged the FBR’s notification, which mandated an affidavit to be filed with sales tax returns.

The petitioners, represented by Asad Ashfaq Tola and others, argued that the affidavit requirement violates the rules of the Sales Tax Act of 1990, as it demands suppliers to verify the actions of their associates.

The court has asked the FBR, the Deputy Attorney General, and other parties involved to submit their responses by November 1.

The court also directed the relevant commissioners to appear at the next hearing.

In the interim, the court instructed the FBR to ensure that sales tax returns for September 2024 be filed without the affidavit requirement.

On October 17, business leaders urged the FBR to defer the requirement for taxpayers to submit an affidavit with Sales Tax Returns, arguing that while taxpayers can verify suppliers' status through the FBR system, they lack access to the full supply chain and may be unfairly penalised for errors caused by vendors despite providing information to the best of their knowledge.

President Karachi Chamber of Commerce and Industry (KCCI) Muhammad Jawed Bilwani, in a statement, advised the FBR to defer the condition of submitting an affidavit for Sales Tax Returns as it compels the taxpayers to affirm that the information provided is completely accurate and true but it is most probable that the information provided would be correct to the best of taxpayer's knowledge yet he will be penalised because of the wrongdoings done by the vendors.

President KCCI said, "It is a very confusing situation," therefore, the FBR should either tell them with whom they should carry out their purchases or come up with Standard Operating Procedures (SOPs) for purchases as currently, they only check whether the vendor is blacklisted or not and when found spotless, they immediately carry out the purchases.

He recalled that the top officials of the FBR had recommended that the business community should check the website before making any purchases which had been a common practice for many years.

However, now they were being forced to submit an affidavit, which could be used against them if the vendor committed tax evasion.

In a separate press statement, Khurram Mukhtar, Patron-in-Chief of Pakistan Textile Exporters Association (PTEA) said the requirement for an affidavit from the Chief Financial Officer (CFO) by the FBR should be deferred, as buyers do not have access to the multi-tier supply chain.

They can only verify the supplier's status through the FBR system to check if the supplier is on the Active Taxpayer List (ATL).

Holding buyers responsible for the entire supply chain is illogical, he said, adding that the government should focus on creating a conducive business environment that increases trade volumes and, accordingly, enhances tax collection.

"We do not support any wrongdoing and strongly encourage strict compliance with tax policies. However, the government must devise a strategy that restores the business community's confidence," he said.