Allotment/transfer of plots within Capital: Tax authorities not empowered to collect FED: Law ministry

The Ministry of Law and Justice has informed the Federal Board of Revenue that the tax authorities are not legally empowered to collect the Federal Excise Duty (FED) on all allotment and transfer of commercial and residential plots/buildings within the jurisdiction of federal Capital.
Sources told Business Recorder here on Friday that the FBR had sought the legal status of the FED on the immovable property within Islamabad after 18th amendment. Law Division has conveyed to the FBR that Board cannot issue rules for collection of the FED on immovable property within the jurisdiction of federal capital. Secondly, the FBR is not legally authorised to collect the FED on such transfers/allotment of plots in the said area.
Sources said the Board had definitely imposed the FED on the immovable property in the past. However, the relevant federal excise rules were not drafted by the FBR to enforce the law. The provision is not applicable as the capital value tax (CVT) has already been transferred to provinces under the 18th amendment. Secondly, property is not a federal subject, but a provincial, subject.
When asked why federal government housing foundation is demanding the FED on allotment of plots, official said that the taxpayer must ask the concerned official to give the copy of the relevant notification/circular. Without legal document, nobody should pay such FED on the allotment of plots. Legally, they cannot demand the FED in the presence of the Law Division ruling and transfer of property matters to the provinces under the 18th amendment.
However, the amount of the FED inadvertently collected by such housing foundation has to be refunded under the latest development. Official added that the FED on the immovable property would be transferred to provinces under the reformed General Sales Tax.
When this scribe contacted another senior government official, he said the federal excise duty (FED) applicable on immovable property within the jurisdiction of federal capital would be abolished under the government policy to gradually phase out the federal excise duty regime under the Reformed General Sales Tax (RGST).
One of the major objectives of the RGST is to phase out the federal excise duty regime. The excise regime would be gradually abolished under the revised sales tax regime. The property is a provincial subject and the federal government cannot introduce legislation on the provincial matters. Therefore, any federal taxation on property would also be abolished during implementation of RGST.
According to sources, there would be only two tax in future ie GST and income tax, whereas tariff rationalisation would continue at the import stage. Under this policy, excises would be reduced as there is no justification of excise duty regime under the reforms being introduced in the sales tax. The FBR will gradually phase out the federal excise duty regime under the RGST.
The FBR had said, "the new GST system will change the mindset of the public at large as well as of the tax machinery and will strengthen government's efforts to formally depart from excise-style of sales taxation on goods and services", it added.
The federal government would abolish the FED on all services including services provided by property developers or promoters, port and terminal operators, franchise services and services provided by banking companies or non-banking financial companies after approval of the Provincial General Sales Tax Bills by the respective provincial assemblies.
Sources said that the excise duty on all services specified in the Federal Excise Act would remain intact till provincial assemblies approve the Provincial General Sales Tax Bills. Following signing of the provincial bills by the respective assemblies, the existing excise duty would replace the lower rate of 15 percent general sales tax on these services.
After 18th amendment, the sales tax collection on services is the right of the provinces. The excise duty on services would be collected unless or until the provincial legislation for the collection of sales tax on services. Once the Provincial General Sales Tax Bills are being signed by the concerned Governors, FED on services would be abolished to impose standard rate of 15 percent sales tax.