Sales tax on services: Sindh blames Centre for creating hurdles in collection

Sindh government believes that the Centre is still creating hurdles in collection of sales tax on services by provinces, as Inland Revenue Service (IRS), Federal Board of Revenue (FBR) has started issuing notices to service providers paying provincial sales tax in Sindh and Punjab to pay Federal Excise Duty (FED), Business Reorder learnt on Tuesday.
Sindh government authorities say that the federal reconvene collection body instead of withdrawing FED following the 7th National Finance Commission (NFC) Award and 18th Constitutional Amendments, wherein GST on services has been declared a provincial subject, has started issuing recovery notices to services providers in Sindh and Punjab.
Well-informed sources in Finance Ministry said that FBR had uploaded a press release titled "FBR withdraws FED to sales tax on services receivable by the provinces to avoid double taxation" on its website on July 1, 2011, but no FED exemption notification has so far been by the FBR. In the backdrop of 18th constitutional amendments and NFC Award, FBR issued the said press release coinciding with a date when Sindh Sales Tax on Services Act, 2011 came into force, empowering Sindh Government and Sindh Revenue Board (SRB) to levy and collect sales tax on services without assigning this function to FBR.
However, the FBR went back on its commitment as it has not yet issued the legal instrument (FED exemption notification) despite the fact that the agreed notification had been vetted by the Federal Law Ministry long ago.
The problem has been compounded in view of the fact that like Sindh, Punjab government also enacted Punjab Sales Tax on Services Act, 2012 effective from July 1, 2012, which too clips FBR's powers to administer and collect sales tax on services previously levied under the Punjab Sales Tax Ordinance, 2000, sources said. Now, the service providers in Punjab and Sindh are facing a dilemma whether they should pay FED or the provincial sales tax or both (by way of double taxation).
Business Recorder reliably learnt that despite several requests and reminders by the Punjab and Sindh authorities and also by the service providers, FBR is keeping mum over the issue, aggravating the concerns of the taxpayers. On the contrary, IRS of FBR has started issuing notices to service providers paying provincial sales tax in Punjab and Sindh to pay FED on their services despite the fact they are already paying provincial sales tax.
Due to the oblivious attitude of FBR, some big taxpayers have filed writ petitions in various courts for redressal of their grievances, sources added. In Islamabad High Court, two big cellular companies have filed petitions, (WP Nos. 330 and 331, 2013) against the recovery notices issued by Large Taxpayer Unit (LTU), Islamabad, asking these companies to pay FED because "Federal Excise Duty continues to be payable on telecom services, despite levy of provincial sales tax". Similarly, LTU, Karachi has also issued such notices to some Banks and financial institutions, who too have filed WPs (eg CP No 23 15/2012) in Sindh High Court (SHC).
These litigations reflect the plight of taxpayers due to FBR's in-action to issue the long-awaited FED exemption notification. Commenting on the situation, some registered taxpayers told Business Recorder that they had informed FBR, PRA and SRB that they would not pay the FED or provincial sales tax unless the tax authorities took a unanimous decision about the jurisdiction of tax collection authorities (federal and provincial).
They urged Raza Rabbani, Chairman Implementation Committee of 18th Amendment, to take notice of the issue and get the required notification issued by the FBR. "Any further delay in this regard will only make the national exchequer suffer, encourage the un-scrupulous elements who evade taxes in such confusing situations and create a negative image of the governments and its tax machineries apparently at loggerhead with each other," they added.