KARACHI: A deepening rift between federal and provincial tax authorities is threatening to undermine efforts to harmonize the sales tax and federal excise duty (FED) collection, leaving taxpayers caught in the crossfire of jurisdictional disputes.
According to the details, the Federal Board of Revenue (FBR) and Provincial Revenue Authorities (PRAs) are at loggerheads over the harmonization of sales tax and FED collection, a conflict that has rendered decisions by the National Tax Council (NTC) largely ineffective.
The Sindh Revenue Board (SRB) has taken the initiative to call for an NTC meeting, citing an adamant approach by the FBR as the primary obstacle to progress.
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At the core of the dispute lies the contentious issue of defining “goods” and “services” for tax purposes. Despite a series of meetings and agreements dating back to 2020, including efforts by the Executive Committee of the National Tax Council (ECNTC), a consensus has remained elusive.
The SRB in its working paper alleged that the FBR has undermined these collaborative efforts by proposing unilateral amendments to the Sales Tax Act of 1990, a move described as “in negation of the spirit of harmonization.”
A decision made by the NTC in June 2022 to include provincial representation on the board of PRAL remains unimplemented nearly two years later.
This delay has raised concerns among PRAs, particularly the SRB, about the federal government’s commitment to agreed-upon reforms.
Further exacerbating tensions, the FBR issued a directive on April 3, 2024, instructing its Chief Commissioners of Inland Revenue to intervene in ongoing court cases challenging provincial sales taxes on various services, which SRB interpreted as an encroachment on provincial tax jurisdiction, even in areas where previous agreements had ostensibly settled such disputes.
The SRB has called for the NTC to take “stern notice” of the FBR’s recent actions, particularly on the April 3 letter, and to direct its immediate withdrawal.
The SRB argued that any disputes should be resolved through the NTC framework rather than through litigation between federal and provincial governments.
Other unresolved issues include the expansion of place of Provision of Services Rules and the need for clarity on tax jurisdiction for activities such as wholesale, distribution, and retail services.
The ongoing conflict highlighted the challenges of coordinating tax policies in the federal tax system, underscoring the need for a more robust mechanism to resolve inter-governmental disputes to support the country’s economic growth and development.
When contacted, sources in FBR confirmed that the letter was issued to the chief commissioners, directing them to make necessary arrangements to take stock of pending petitions in the high courts where taxpayers have challenged the levy of provincial sales tax on various services and appoint suitable counsel to make FBR as a party in such cases.
However, sources close to the matter informed that the Ministry of Finance has also taken action on the working paper, directing the FBR to furnish comments on it before consideration by ECNTC.
Copyright Business Recorder, 2024
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