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Federal Tax Ombudsman (FTO) Calls for Relief to Taxpayers Affected by Supplier’s Non-Compliance in Sales Tax Returns

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Federal Tax Ombudsman (FTO) Calls for Relief to Taxpayers Affected by Supplier’s Non-Compliance in Sales Tax Returns

Islamabad 01-11-2024: In a recent judgment, the Federal Tax Ombudsman (FTO) has directed the Federal Board of Revenue (FBR) to implement urgent measures to ease the tax compliance burden on businesses affected by supplier non-compliance in sales tax filings. This decision comes in response to a wave of complaints from tax bar associations, Chartered Accountants, and other stakeholders facing operational and financial hurdles due to recent amendments in tax rules.

The judgment stems from an Own Motion (OM) investigation initiated by the Federal Tax Ombudsman (FTO) under Section 9(1) of the Federal Tax Ombudsman (FTO), 2000. The investigation was prompted by issues arising from SRO 350(1)/2024, which links taxpayers’ ability to claim input tax adjustments to their suppliers’ compliance in filing returns. Complaints indicated that many businesses were unable to process these claims, leading to substantial disruptions in the supply chain and unwarranted tax liabilities.

Under Section 8A of the Sales Tax Act, 1990, the FBR maintains that buyers and suppliers share joint liability in sales tax compliance. However, the Federal Tax Ombudsman (FTO) found that the implementation of SRO 350(1)/2024 constituted maladministration due to the hardship it imposed on compliant taxpayers. This rule resulted in significant delays and backlogs, affecting business operations and creating fictitious tax demands.

In response to the grievances, the FBR recently issued SRO 1130(1)/2024, which introduced exclusions for specific industries, such as gas and electricity distribution companies, independent power producers, and manufacturers of Third Schedule items, in order to mitigate the compliance burden. Yet, the Federal Tax Ombudsman (FTO) underscored that further reforms are necessary to facilitate fair compliance.

The Federal Tax Ombudsman (FTO) judgment includes several recommendations to improve tax compliance mechanisms while reducing taxpayer hardship.

The Federal Tax Ombudsman (FTO) has directed the FBR to update its IRIS tax filing system to reflect the relief measures outlined in SRO 1130(1)/2024. The FBR is urged to improve support for both buyers and suppliers in filing returns, potentially through more flexible deadlines and easier processing systems.

The Federal Tax Ombudsman (FTO) suggests extending the six-day grace period currently allowed for suppliers, providing additional time for compliance to avoid automatic tax liabilities for buyers.

Recognizing the complexity of the tax adjustments, the Federal Tax Ombudsman (FTO) calls on the FBR to issue comprehensive guidelines to assist taxpayers navigating SRO 350(1)/2024.

The Federal Tax Ombudsman (FTO) has granted the FBR a 45-day deadline to comply with these recommendations. This judgment underscores the Federal Tax Ombudsman (FTO) commitment to balancing regulatory enforcement with taxpayer facilitation, especially in light of the operational realities faced by businesses.

This decision is expected to provide much-needed relief to taxpayers impacted by supply chain inefficiencies and highlights the need for ongoing collaboration between the FBR and the taxpayer community to address systemic challenges in the tax compliance landscape.