The question is not clear but i presume that it basically asks if a discount provided on local supplies but funded by an overseas principal will be subject to VAT. As per Art 28 of ER one of the conditions requirement to be met for reducing the value of discount from taxable supplies is that it should be funded by the supplier which in this scenario of a local sale, the supplier is you. If the discount offered on local sale is not funded from your end, the VAT on entire value of supply (before discount) should be reported and paid to the Authority. Further, the funding received from the overseas principal will be out of scope since it is merely a payment made against your taxable supplies ie payment for your local supply is partly received from local customer and other part from the overseas principal. So there is no requirement to consider separate VAT treatment for the funding received, in my view.

Discount costs are passed on & financed by any third party (Overseas Principal) In the case that the discount or any part thereof is financed either by the manufacturer or by any other person, such funding (discount) may be subject to VAT on local supplies ?

Article 28 specifies that inorder for discount to be reduced from taxable supply value for the purpose of calculating VAT, the discount should be funded by the supplier. If the supplier is being funded by another party for the purpose of allowing discount to the end customers, then the supplier would not be allowed to reduce the discount from their sales to end customers for the purpose of VAT calculation.

Thanks Sajith. Furthermore apart from discount other incentives/Bonuses which receive from Foreign Principals are also taxable like Incentive/Bonus to achieve Targets in term of Quantity ....such payments are also taxable? Principal pays in cash.