Pakistan Customs Service (PCS) and Inland Revenue Service (IRS) are divided over the crucial issue of sales tax collection at the import stage, as the PCS wanted to take credit of sales tax (imports) and IRS is hell-bent to make the collection part of its own performance during 2012-13.
Sources told Business Recorder here on Friday that a serious dispute between the PCS and IRS on the sales tax collection at the import stage is yet to be resolved. The customs officials were of the view that sales tax collection on imports is revenue collected by the efforts of customs machinery at ports.
The credit of sales tax (imports) goes to the customs department as per section 6 of the Sales Tax Act, 1990. As per this section, the sales tax in respect of goods imported into Pakistan shall be charged and paid in the same manner and at the same time as if it were a duty of customs payable under the Customs Act, 1969. As the section 6 of the Sales Tax Act, 1990 is very clear on the issue, the sales tax collection on imports should be treated as performance of the customs department. Thus, practically the customs department is collecting this tax on imports and the credit of the same should be given to the customs collectorates.
On the other hand, IRS was of the view that the sales tax on imports is part of the overall sales tax collection of the IRS Wing. The targets assigned to the Regional Tax Offices etc included both the sales tax collected on domestic consumption as well as import stage. The FBR has fixed monthly targets of the field formations on the basis of sales tax collected at both these stages. It is the responsibility of the IRS officials to collect sales tax at local and import stages and credit of the same goes to the IRS. As this is the revenue of IRS, it is rightly reflected under the sales tax head of account.
Customs authorities have strongly contested the viewpoint of the IRS Officials on the issue with the argument that customs has a separate head of account ie "02012" and all customs duty has been deposited in this head. However, sales tax has two components ie sales tax at local stage and sakes tax on imports. Both sales tax at local stage and imports have single head of account. If there are separate head of accounts for sales tax on imports and that collected on local supplies, the dispute could be resolved.
Sources said that the customs officials do not want to show sales tax collected at import stage under the separate head of account (02012). Contrary to this, the credit of collection of sales tax on imports should be given to the customs department as they are collecting the levy and legally Sales Tax Act, 1990 has also allowed for treating the sales tax collected on imports, as customs duty. The FBR should continue to deposit the sales tax on imports under the sales tax head of account, but the credit should be given to the authority responsible for collecting the same at import stage.
Quoting an example, sources said that a high level meeting at Ministry of Finance was held during last June 2012 chaired by Special Secretary Finance. The meeting was also attended by senior officials of the PCS and IRS. It was decided that the credit of sales tax collection on defence stores at the import stage would be given to the concerned customs collectorates, who are responsible for collecting the same. Thus, sales tax on imports of defence stores would be treated under the performance of the relevant collectorates. As per this decision of the meeting, Model Customs Collectorate (MCC) Appraisement Karachi was responsible to deposit sales tax collected on imports of defence stores during first quarter (July-September) 2012-13. The amount was required to be deposited under the sales tax head of account, but the credit of the same should be given to the MCC Appraisement Karachi. However, the Regional Tax Office Rawalpindi has deposited the amount and claimed all the credit of sales tax collected on imports of defence stores. Now, this sales tax (imports) would be reflected as performance of the RTO Rawalpindi instead of MCC Appraisement Karachi. The credit of job done by the MCC Appraisement Karachi of collecting sales tax on import of defence stores cannot be given to the said collectorate. This is also against the policy decision taken in the said meeting held at the Ministry of Finance.
The MCC Appraisement Karachi is not in a position to take credit of the revenue which was practically collected by the said collectorate, sources said. Sources added that major dispute has not been resolved and both the PCS and IRS are trying to take credit of the sales tax collected at the import stage. Both the sides have not changed their stance and the issue of sales tax collection on imports of defence stores has further complicated the situation during 2012-13.
Recently, Collectors of Customs Conference has taken a decision to resolve this issue. According to the decision of the Collectors of Customs Conference, the FBR constituted of a committee comprising of Senior Member Tax Policy Inland Revenue and Member Customs to consider the view point of Customs Wing while planning any changes regarding Sales Tax at import stage. The action would be taken by Senior Member Tax Policy Inland Revenue and Member Customs in co-ordination for resolving the issue.
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