FTO Directs FBR to Address Hardships Faced by STR Persons in Filing Sales Tax Returns

In response to numerous complaints from tax professionals and trade bodies, the Federal Tax Ombudsman (FTO) has initiated an Own Motion (OM) investigation under Section 9(1) of the Federal Tax Ombudsman Ordinance, 2000. This investigation was launched due to the significant challenges faced by Sales Tax Registration Number (STRN) holders in submitting their sales tax returns, following the introduction of SRO 350(1)/2024.

The investigation was prompted by complaints from several tax bar associations and chartered accountants, including the Multan, Sialkot, and Gujranwala Tax Bar Associations, as well as Nadeem & Co., Chartered Accountants, Lahore. These groups highlighted that SRO 350(1)/2024 stipulates that input tax can only be claimed if the corresponding supplier has also submitted their sales tax return. However, taxpayers cannot force their independent suppliers to file these returns, creating a backlog of sales tax returns and significant financial and operational disruptions.

The FTO noted that while the intention behind SRO 350(1)/2024 was to prevent the misuse of fake invoices, the measure has caused undue hardships, including an inability to file returns, supply chain disruptions, and blockages in business operations. Complainants argued that the burden on taxpayers should be eased and suggested mechanisms such as making buyers withholding agents for sellers and allowing simultaneous filing of sales tax returns for entities in mutual transactions.
During the hearing, some complainants pointed out that while SRO 1130(1)/2024 provided a six-day grace period for suppliers to file returns, this is insufficient. They urged the Federal Board of Revenue (FBR) to extend this period and automate the system to accommodate the reciprocal nature of transactions between suppliers and buyers.

The FTO, in its directive, has instructed the FBR to update the IRIS system in line with SRO 1130(1)/2024, explore further facilitation in the filing of returns, seriously consider extending the grace period, and issue guidelines to help taxpayers navigate the complexities of SRO 350(1)/2024. Compliance is to be reported within 45 days.