KARACHI: The Karachi Tax Bar Association (KTBA) has raised serious concerns regarding the Federal Board of Revenue’s (FBR) mandate requiring the declaration of eight-digit Harmonized System (HS) Codes and specific Units of Measurement (UoM) in sales tax returns.
In a formal letter addressed to the Chairman of FBR, KTBA President highlighted that while the intent may be to enhance traceability and streamline tax processes, the implementation lacks practical foresight. The introduction of 8-digit HS Codes for local trading contradicts the simplification goals that FBR has previously emphasized. KTBA pointed out that the local trading environment operates on different norms compared to imports, especially in the use of UoMs, which further complicates compliance.
KTBA referred to their earlier correspondence (Letter No. KTBA/03.2025/039 dated March 17, 2025) to reiterate that this requirement is creating unnecessary hurdles for taxpayers and consultants alike. The 8-digit classification, while useful in customs, often leads to disputes even in international trade due to the complexity beyond the standard five-digit level. Applying the same rigor to local transactions is not only impractical but also inconsistent with the spirit of the Sales Tax Act, 1990.
Furthermore, KTBA emphasized that there is no statutory backing for this requirement under current tax laws. The FBR’s IRIS system enforces this mandate without clear legislative support, making it burdensome and legally questionable.
KTBA proposed several pragmatic changes:
1. Limit HS Code requirement to five digits, which aligns better with existing law and reduces ambiguity.
2. Introduce flexibility in UoM declarations, acknowledging that businesses use varying measurement units domestically and internationally.
3. Restrict the appearance of certain HS Codes in sales returns of finished goods across supply chains to prevent manipulation.
4. Prioritize descriptive accuracy over HS Codes in determining tax liability, recognizing industry-specific terminology.
5. Activate Annexure-H1 in the IRIS system for better stock reporting.
6. Update Sales Tax Schedules with correct five-digit HS Codes to assist in proper exemption and chargeability assessments.
KTBA hopes that FBR will review these suggestions with an open mind. A cooperative and consultative approach will benefit not only FBR’s enforcement goals but also ease taxpayer compliance, creating a balanced and effective tax environment.
