Interconnection charges: vacation of stay order paves way for recovery of Rs 47 billion FED

The Large Taxpayer Unit (LTU), Islamabad, is committed to recovering Rs 47 billion as federal excise duty (FED) on interconnection charges from telecom companies after the vacation of a stay order filed by two operators from the Islamabad High Court (IHC).
On Thursday, senior officials of LTU, Islamabad, made a presentation at the Federal Board of Revenue (FBR) on the long-term strategy to achieve the monthly and quarterly targets for October-December (2012-2013) during the last Chief Commissioners' conference held at the Board. The presentation spoke about a strategy of the LTU, Islamabad, to generate additional revenue under specific timelines and action plan for 2012-2013.
According to the presentation, the department would be able to recover FED on interconnect service from the telecom sector. This is subject to vacation of stays in two cases filed by telecom companies. In case, the stay was vacated, the department would start the recovery proceedings against telecom companies. The LTU, Islamabad, also informed the Board that an additional tax demand of Rs 19 billion was expected to be raised against Independent Power Producers (IPPs) falling within the jurisdiction of the said LTU. The Appellate Tribunal in judgement reported as 2011 PTD 1306 upheld departmental stance on the issue of apportionment of input tax between energy purchase price and capacity purchase price in terms of Section 8(2) of the Sales Tax Act, 1990 ie, inadmissibility of input tax claim against capacity purchase price which is a non taxable/exempt supply (likely impact approximately Rs 19 billion), sources said.
The unit also focused on franchise service fee and the cement sector under its long-term plan for increasing revenue collection during 2012-2013. It also informed that a short-term strategy was also presented by the LTU, Islamabad, before the Board.
For monitoring of withholding taxes (WHT), show-cause notices have been issued for ensuring timely filing of WHT statements by agents. The tax demands have been created under sections 161/205 of the Income Tax Ordinance 2001 in cases of defaulting withholding agents. The LTU is also convening meetings with withholding agents for recovery of the due amount of taxes.
One of the major initiatives taken by the LTU, Islamabad, included monitoring of production in selected sectors through physical verification. The tax officials would identify units showing negative growth through field audits. The short-term strategy of the LTU, Islamabad, also showed that efforts were under way for vacation of stay in cases involving income tax demand of Rs 25,473 million and sales tax demand of Rs 9,090 million.
Officials have been engaged in meetings with CFOs/CAs and advocates aimed at recovery of recoverable tax demand of Rs 3,579 million. Other recovery measures included attachment of bank accounts/coercive measures and recovery in cases pointed out by External Audit. The LTU, Islamabad, further informed the FBR that transfer of revenue from the telecom sector to the Sindh Revenue Board and Punjab Revenue Authority has affected sales tax collection.
Power outages/gas load shedding in fertiliser sector also resulted in comparatively less payment of taxes by the said sector during 2012-2013. The LTU, Islamabad, also informed the FBR that arrears against nine government departments of income tax, sales tax and the FED amounted to Rs 11,770 million during first quarter of the current fiscal. Concerted efforts were being made for vacation of stay granted by various appellate fora for recovering outstanding demands, sources added.