In my view Rebates and Incentives should be assessed based on its nature. If the nature is that of a discount against supply then value of supply needs to be adjusted accordingly. However if these are in exchange for any services provided from your end (such as sales promotion incentives) then these would amount to consideration against taxable supplies. Each scenario must be assessed with the underlying contractual terms to determine this.

In case where discount against supply is reversed back to us, in such case, what is treatment of vat on it?

Do you mean, a discount provided earlier is reversed or funded by third party? Then the value of supply should be increased accordingly and applicable VAT should be applied.

let take an example, products imported from Principal and sold locally and Dhirm 100K discounted awarded and on balance net amount is taxable @5%. There is a back arrangement with Principal already, And from this discount, an amount of 50K is funded by foreign Principal ( called as incentive, cashback discount) ..what is treatment of VAT on this 50K, rest 50K is our expense.

For a discount to be eligible for reduction from taxable supply value, it has to be funded by the supplier. In this case, you as a supplier is not funding the entire discount. So any discount which is funded by the principal, you are not entitled to reduce this from your taxable supply for calculation of VAT. So in the given case VAT is due to be paid on 50K

Please refer Article 28 of ER which lays down the conditions subject to which discount can be reduced from value of supply for the purpose of determining VAT liability.

Hi @Nusrat Abbas, Did you get clarification on this topic?