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A Major Loss for Pak Suzuki in Sales Tax Case

Pak Suzuki

It seems Pak Suzuki has another major setback in Pak Suzuki case, as another decision has been announced against the company. According to details, Federal Tax Ombudsman (FTO) has asked Federal Board of Revenue (FBR) to direct “the concerned Commissioner-IR to refund the amount of Sales Tax collected in excess of 12.5% from the complainant as per law.”

Background of Issue

And here is a bit of background of this whole case. Under the new Auto Policy (2021-2026), the federal government reduced the sales tax on all cars to 12.5% from 17%, along with a 2.5% reduction in Federal Excise Duty (FED) from July 1st, 2021. It means all invoices after this date will have the new tax reductions. One of the biggest beneficiaries of this policy is Pak Suzuki, but it seemed that the company was not ready to transfer this benefit to the buyers.

The reports stated the car manufacturer charged 17% Sales Tax, even after July 1st,  as several customers shared their invoices with us. As per these invoices, the company reduced the FED as per the auto policy; however, the sales tax was still standing at 17%. Furthermore, when customers raised the issue, the company said it had already paid the sales tax on these cars, at the time of booking. Many of these customers have objected over this, but there was no positive response by the company. Hence, some of the affected approached Federal Tax Ombudsman (FTO), and now authority has issued its verdict.

Verdict on Pak Suzuki Issue

According to detailed verdict, the consumers will get the additional amount back. The FTO stated that there was a lack of clarity with regard to the definition of “time of supply” at the time of booking of the vehicle in May 2021 and that at the time of delivery in July, 2021. “As per the definition in May 2021, the relevant time for determining the taxation rate was the time when payment was received by the supplier, when Sales Tax was 17%. However, both definition and application rates of taxes had been changed,” the verdict read.

Furthermore, FBR, defines “time of supply”  in relation to –

(a) the time at which are goods are delivered or made available to the customers

(b) Change in the tax rate – if there is a change in the rate of tax –

a taxable person will be charged to tax at the rate as is in force at the time of supply.

“So, in view of this clarification, the time of payment receipt by the supplier becomes irrelevant, if the supply is made on or after July 1, 2021.” FTO said.

In short, the Pak Suzuki will have to refund the additional amount back to the customers.

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