Resolving inter-provincial taxation issues: SRB urges FBR to constitute joint 'Standing Technical Committee' with PRA

Sindh Revenue Board (SRB) has asked the Federal Board of Revenue (FBR) to immediately constitute a Standing Technical Committee, comprising FBR, SRB and Punjab Revenue Authority (PRA) to resolve inter-provincial service taxation issues and finalise new taxation proposals to remove conflict in tax jurisdictions.
Sources say the SRB has taken up three important sales tax related issues with the FBR for harmonisation of federal and provincial sales tax laws. The issues are related to the sales tax on foodstuff served by hotels/restaurants, franchise services and advertisement services on hoarding sites/poles/signboards, etc.
The SRB has reiterated its resolve to provide full support, co-operation and co-ordination to FBR and PRA in matters relating to FED/sales tax on services. There is a need to immediately create a Standing Technical Committee (comprising of representatives from FBR, PRA and SRB) with its secretariat in FBR, Islamabad, to meet at least once every month to co-ordinate and resolve the issues arising out of variance and conflicts in laws and regulations of the tax jurisdictions in general and arising out of the provisions of section 4 of the Punjab Sales Tax on Services Act, 2012, in particular.
In a recent communication of the SRB to the FBR and the PRA, SRB said that as regards advertisement services (tariff heading 98.02) on hoarding sites, poles, signboards, etc. the same are also liable to Sindh sales tax (SST) at 16 percent under the Second Schedule of the Sindh Sales Tax on Services Act, 2011 (SSTOs Act, 2012), besides being listed in Sl. No 2A of Table-II of the First Schedule to the Federal Excise Act, 2005.
As regards the services of advertisements in newspapers and periodicals (tariff heading 9802.4000), it is also listed at S.No 2A of Table-II of the First Schedule to the Federal Excise Act, 2005, but is exempt from FED under FBR's Notification No SRO 802(1)/2009 and No 81(I)/2010. In fact, the services of advertisements in newspapers and periodicals have always remained exempt from FED, except that FED was levied on such services for a short while through the Federal Budget 2009-10 but was soon exempted through the aforesaid two notifications. The FBR may check up at their end to verify PRA's statement, that "Previously, FBR was collecting Federal Excise Duty on print media advertisements, etc. So far as Sindh is concerned, although the advertisement services in newspapers and periodicals, excluding classified advertisements is listed in Part-B of the Second Schedule to the SSToS Act, 2012, it is exempt from SST under Sno 1 of the Table in SRB notification No SRB. Leg(I)/2011 dated 01.07.2011. This service of advertisements is also not taxable under the Schedules to the KPK/Balochistan Sales Tax Ordinances of 2000 and the ICT (Tax on Services) Ordinance, 2001. While the Punjab Government's authority to levy any sales tax on any services in isolation (ie the tax being not levied in any other tax jurisdictions) is respected, SRB reiterates its proposal that a Standing Technical Committee, comprising representatives from FBR, PRA and SRB, be formed urgently with its secretariat in FBR, Islamabad, with a mandate to discuss and resolve inter-provincial service taxation issues and to deliberate upon new taxation proposals of a tax jurisdiction and its possible simultaneous adoption by other tax jurisdictions, SRB said.
Sources said that as regards the Punjab taxation on "Franchise Services" (tariff heading 9823.0000) at 16 percent, Sl. No 11 of Table-II of the First Schedule to the Federal Excise Act, 2005, levies FED on franchise services at 10 percent. No sales tax is levied on Franchise Services under the Schedules to the aforesaid KPK/ Balochistan Ordinances of 2000 or the ICT Ordinance of 2001. Although listed as a taxable service at 16 percent in terms of tariff heading No 9823.0000 of Part-B of the Second Schedule to the SSToS Act, 2012, the Franchise Services are levied to SST at a reduced rate of 10 percent (ie, the same rate as FED) in terms of Notification No SRB-3-4/2/2011. While the variance in tax/FED rates on Franchise Services also needs to be discussed and deliberated upon in the proposed Standing Technical Committee, SRB proposes that the desirability of allowing backward and forward input tax credit facility in relation to tax on Franchise Services may also be discussed and deliberated upon in the proposed Standing Technical Committee. At present, SRB-prescribed Rules do not allow input tax credit facility in relation to franchise services. FBR-prescribed Rules also do not allow input tax (FED) credit/adjustment against sales taxable outputs because Franchise Services are neither listed in the Second Schedule to the Federal Excise Act. 2005, nor in FBR's Notification No SRO 550(1)/2006. However, Sindh and Punjab sales tax on Franchise Services are admissible for input tax credit/adjustment against the output tax (federal sales tax) paid or payable in view of the provisions of section 7(1) of the Sales Tax Act, 1990, read with section 2(14)(d) thereof.
As regards federal sales tax on prepared or cooked food (un-specified tariff headings) sold and served in restaurants (tariff headings 9801.2000), several correspondences have been exchanged between FBR and SRB. The SRB feels that the said opinion dated July 27, 2012 of the Law & Justice Division and SRB's comments thereon need to be shared with PRA and this too may be discussed and deliberated upon in a meeting of the proposed Standing Technical Committee. However, the SRB reiterates that the FBR may consider issuing a sales tax exemption notification reviving the exemption as contained in Sl. No 3 (vii) of the Sixth Schedule to the Sales Tax Act, 1990, as it existed before July 1, 2000, ie, the date when the Provincial Sales Tax Ordinances came into effect. The exemption may read "Foodstuff prepared, cooked and served by hotels, motels, guest houses, restaurants, clubs and caterers on which sales tax on services is levied and paid under the respective provincial/ ICT legislation," SRB maintained.