Taxation

Sales Tax Refund Claims in Pakistan: Exporters, FASTER, Deferred Refunds and Section 66

For an exporter, a sales tax refund is working capital. The input tax paid on yarn, chemicals, packing and power cannot be recovered from foreign buyers, so every week a claim sits deferred is felt in the business. Exporters looking for the best tax refund lawyer in Pakistan are usually dealing with a deferred or withheld claim, and what decides most of those cases is the paper trail behind the Annex H, not argument. This guide explains the two refund routes in the Sales Tax Act, 1990, how claims are filed and processed, why they are deferred and what each side can do when a refund is delayed, as the law stands after the Finance Act, 2026.

Two different refunds: section 10 and section 66

The Act provides two refund routes that are often confused:

• Section 10 deals with excess input tax. Where the input tax on a registered person's taxable purchases in a tax period exceeds the output tax on its zero-rated local supplies or exports, the excess is refunded.
• Section 66 deals with tax paid or overpaid through inadvertence, error or misconstruction, and with the recovery of input tax that was never adjusted.

A third, narrower route sits in section 8B(2) and (3): a company whose audited accounts show value addition below the 90 per cent cap can obtain a refund of the blocked excess once a year. That cap is explained in our guide to input tax adjustment.

The distinction matters because the time limits, the evidence and the defences differ. A claim framed under the wrong section is a common reason for rejection.

Who can claim under section 10

Section 10(1) gives a refund right to a registered person whose excess input tax arises from exports or zero-rated local supplies. The refund must be paid "not later than forty-five days of filing of refund claim", in the manner and on the conditions the Board notifies.

Two provisos shape the right:

• Where the excess input tax relates to supplies other than exports and zero-rated supplies, it is not refunded but carried forward to the next tax period as input tax, together with any amount blocked by the section 8B cap. The Board may prescribe a refund procedure for such amounts by notification.
• The Board may direct that export-related refunds be paid at fixed rates in a notified manner.

Section 10(2) allows the refund to be paid only after deducting any tax, default surcharge or penalty the claimant owes under a law the Board administers. Arrears in another tax can therefore reduce a sales tax refund.

Only admissible input tax can be refunded. Input tax blocked by section 8, such as tax on building materials, vehicles or office furniture, does not become refundable simply because the business exports. Where an exporter also sells locally, or makes exempt supplies, section 8(2) requires residual input tax to be apportioned, and only the share attributable to taxable supplies, including zero-rated exports, can be claimed. Common costs such as electricity and gas are a frequent point of dispute, because the claimant's apportionment method has to be explained and supported with consumption data.

Filing the claim under Chapter V of the Sales Tax Rules, 2006

The procedure sits in Chapter V of the Sales Tax Rules, 2006 (rules 26 to 39), with a separate Chapter V-A (rules 39B to 39G) for automated processing of export refunds. Rule 28, as amended by S.R.O. 918(I)/2019 of 7 August 2019, governs filing. FBR guidance on rule 28 issued in December 2023 summarised the position for tax periods from July 2019 as follows:

• The monthly return is the supporting data, and the amount in column 29 of Form STR-7 is treated as the section 10 claim.
• Zero-rated supplies may be declared in a return filed without Annex H, but Annex H must then be filed within 120 days. The Annex H filing date is treated as the date of the refund claim, which is when the forty-five days under section 10 start.
• The Commissioner may extend the 120 days by up to 60 days on a justified request.
• For commercial exporters, the 120 days run from the return or the bank credit advice date, whichever is later.
• Invoices, goods declarations, bank credit advices and banking instruments are not uploaded with the claim but must be kept and produced when the processing officer asks.

Missing the Annex H deadline is a frequent and costly error. Practitioners, including the Karachi Tax Bar Association, have pressed the FBR to relax it, but the time limit remains in the rules.

FASTER, risk parameters and deferred refunds

FASTER (Fully Automated Sales Tax e-Refund) was launched in 2019 to process export refunds without manual handling. When it was introduced, the FBR said refund payment orders would issue within 72 hours of the claim. A separate FASTER module for pharmaceutical companies operates under rule 39L, which the Federal Tax Ombudsman treated in 2024 as requiring processing within 72 hours.

Automation does not mean every rupee is paid. The system applies risk parameters, and anything that fails them is deferred for manual processing. As reported, Sales Tax General Order 9 of 2023 introduced parameters including:

• a value-addition check and a cap linked to input tax actually consumed in zero-rated goods;
• no processing of inadmissible input tax under section 8, or of invoices from blacklisted suppliers or suppliers with abnormal tax profiles;
• deferral of the share of refund linked to an export goods declaration under objection;
• exclusion of a newly registered exporter's claims for the first twelve months, which go to manual processing;
• payment to commercial exporters only after export proceeds are realised; and
• verification of installation before refund of input tax on fixed assets.

Deferred amounts are processed on merit under Chapter V. Because a single unverified supplier can hold back part of a claim, the input tax checks in our guide to suspension and blacklisting matter as much to exporters as to domestic buyers.

When the department withholds a refund

The department has a legitimate duty to verify claims before public money is paid out. Section 10(3), in the form it has taken since at least 2017, provides that where there is reason to believe a claimant has claimed an inadmissible credit or refund, the proceedings must be completed within 60 days; an officer not below Additional Commissioner may extend this to 120 days for enquiry, audit or investigation, and the Board may extend it further for recorded reasons but not beyond nine months. The current text should be confirmed before relying on these figures.

For the taxpayer, these limits are the key protection: verification must be specific and completed within time. For the department, the limits mean that a weak claim should be dealt with by a reasoned order rather than left pending. Where an erroneous refund has already been paid, recovery proceeds under section 11, explained in our guide to sales tax assessment and appeals.

Refund of tax paid in error: section 66

Section 66 bars a refund of tax paid or overpaid through inadvertence, error or misconstruction unless the claim is made within one year of the date of payment. Its provisos matter in practice:

• where a refund arises from a decision or judgment of an officer, a court or the Appellate Tribunal, the year runs from that decision or judgment;
• the Commissioner may allow unadjusted input tax to be adjusted in a specified period once satisfied it is due and admissible;
• a claim must be disposed of within ninety days of filing; and
• no refund is admissible where the incidence of tax has been passed on to the consumer.

The pass-on rule rests on the principle of unjust enrichment applied by the Supreme Court in Fecto Belarous Tractor Ltd. v. Government of Pakistan, PLD 2005 SC 605. Following it, the High Court of Sindh in Telecard Limited v. Collector of Sales Tax (Special Sales Tax Reference Application No. 76 of 2009, decided 2 February 2010) upheld refusal of a refund where the tax had been passed on to end consumers and the claimant was not the supplier.

Section 66 can also rescue input tax that was never adjusted. In Commissioner Inland Revenue v. Attock Cement Pakistan Limited, 2023 SCMR 279, the Supreme Court accepted that a claim for unadjusted input tax on imported machinery and spare parts was maintainable as a refund claim under section 66, provided it was made within the limitation period.

Refund claims under section 66 are supported by a written application stating the amount and reasons, the input tax invoices, proof of payment and the order relied on. The officer checks that the amount was not adjusted or refunded earlier.

Delays and remedies

Several remedies are available when a refund is delayed or refused, and they serve different purposes:

• Compensation for delay: section 67, as reproduced in published commentary from December 2023, provides for an additional amount at KIBOR per annum on a section 10 refund not paid within time, running from the day after the time limit expires. It does not run while a reasoned inadmissibility investigation is pending, and for a refund ordered under section 66 it runs if payment is not made within forty-five days of the order.
• Appeal: an order rejecting a refund in whole or in part is an order of an officer of Inland Revenue that may be appealed to the Commissioner (Appeals) under section 45B, generally within thirty days.
• Federal Tax Ombudsman: where the problem is inaction or maladministration rather than a legal dispute, a complaint can lead to directions to process the claim, as in the 2024 pharmaceutical refund case noted above.
• Constitutional petition: the High Court of Sindh may direct a decision where a statutory duty is plainly not being performed, but it will not usually decide disputed facts that the statutory forums should determine.

The right forum depends on whether the dispute is about delay, entitlement or facts. Our tax and customs practice handles refund matters for claimants and for the department.

Practical checklist for exporters

1. Calendar the 120-day Annex H deadline for every return filed without it, and apply for any extension before it expires.
2. Screen suppliers for active status and section 73 compliance before purchase, because a single problem invoice can defer part of a claim.
3. Keep export goods declarations, bills of lading and bank credit advices filed by claim period.
4. Clear old tax, default surcharge and penalty arrears, or contest them, since they can be set off under section 10(2).
5. For tax paid in error, file under section 66 within one year and be ready to show the tax was not passed on.
6. Sindh sales tax on services is refunded by the Sindh Revenue Board under its own law, not under section 10; see our Sindh sales tax on services guide.

Common questions

This article is general information about Pakistani law and procedure, not legal advice for any specific matter. If this touches on something you're currently facing, get in touch and we'll advise on your facts directly.