KTBA slams FBR’s 8-digit HS code mandate in tax returns

The Karachi Tax Bar Association (KTBA) has expressed strong reservations over the Federal Board of Revenue’s (FBR) mandatory requirement of using 8-digit Harmonised System (HS) codes in sales tax returns. 

According to the 24NewsHD TV channel report, the KTBA president has also formally communicated these concerns in a letter to the FBR chairman.

The KTBA president said in his letter that while the initiative may aim to improve transparency and traceability in the taxation system, the lack of foresight in its implementation is concerning.

The association pointed out that the mandatory use of 8-digit HS codes conflicts with FBR’s previously announced sample system framework.

Moreover, the inclusion of detailed Units of Measurement (UOM) requirements adds further complexity, making compliance more difficult for the business community.

The KTBA president argued that the imposition of 8-digit HS codes not only creates unnecessary procedural hurdles but also contradicts the spirit of the Sales Tax Act, 1990. 

He questioned how such a system could be effective locally when international trade itself often faces complications and disputes beyond 5-digit codes.

The association also highlighted the absence of any legal provision for this requirement in the current tax laws.

In a set of detailed recommendations, the KTBA president urged the FBR to limit HS codes to five digits to ensure legal alignment and reduce complexity and introduce flexibility in units of measurement to accommodate diverse business practices.

He urged to define clear HS code boundaries for finished goods in the supply chain to prevent misuse and also update Sales Tax Schedules with accurate five-digit codes to ensure proper exemption and rate application.

Reporter: Ashraf Khan