FBR too charging tax on services

The Federal Board of Revenue (FBR) is charging Federal Excise Duty (FED) on banking, insurance and franchise services at federal level despite payment of sales tax at provincial level, reflecting double taxation on these services. The FBR data revealed that it collected Rs 20 billion as FED from services in 2013-14 as compared to Rs 13 billion in the corresponding period of 2012-13, reflecting an increase of 50.8 percent.
The data also reflects that the FBR has collected FED from services sector covering air tickets and telecom in 2013-14. However, in the current budget the FBR has de-notified the FED collection on telecom sector. Sources said the FBR through its field offices is attempting to tax banking, insurance, franchise services at the federal level in spite of the fact that sales tax is being paid at the provincial level. This results in double taxation and consequently there are numerous appeals pending against duplicate imposition of sales tax on services.
As far as telecommunication service is concerned, the FBR had de-notified the telecom service where provincial sales tax is applicable. The government is not charging federal excise duty on telecom services in provinces, which are charging sales tax on such services. Sindh, Punjab and KP are charging sales tax on telecom services whereas FBR is no longer charging federal excise duty on these services to avoid double taxation.
FED on services should be confined to Islamabad Capital Territory and the province of Balochistan until such time as separate sales tax legislation is enacted in these areas. In 2014-15 budget, the FBR had reduced FED on telecom services from 19.5 to 18.5 percent for Islamabad and Balochistan province. In Islamabad, the FBR will collect the FED on telecom services.
However, the following provinces have set-up their own Revenue Board Authority to administer and collect sales: Sindh Revenue Board (SRB) through the Sindh Sales Tax on Services Act, 2011 with effect from 01 July 2011; Punjab Revenue Authority (PRA) through the Punjab Sales Tax on Services Act, 2012 with effect from 01 July 2012 and Khyber Pakhtunkhawa Authority (KPKA) through the Khyber Pakhtunkhawa Finance Act 2013 with effect from 01 July 2013, Tax Reform Commission said.
The Tax Reform Commission (TRC) maintains that the FED law covering services still remains in force in spite of the fact that the sales tax on services is being collected separately by the provinces of Sindh, Punjab and Khyber Pakhtunkhawa under their own provincial legislations. The TRC recommended that the FED be confined to goods only and all provisions relating to services be eliminated. Alternatively, FED on services should be confined to areas of Pakistan where there is no separate provincial sales tax legislation.
A clarification by way of an SRO needs to be issued that where sales tax is chargeable under the sales tax law of a provincial authority, there will be no demand created on account of sales tax that is payable in the respective provinces and that all existing demands already created stand null and void. This would enable the taxpayers to withdraw the appeals already filed on the matter of dual taxation at various appellate forums, the TRC recommended.
The rationale for change is that continued existence of the FED law results in exposure to dual taxation, the TRC added. Experts told Business Recorder here on Monday that the FBR has retained certain services within the purview of Federal Excise Act. Legally, the FBR is in a position to raise tax demands against service providers liable to FED under Federal Excise Act.
For example, tax department made an attempt to recover FED from banks in Sindh, but the banks obtained stay order from the court. Thus, whenever the FBR intends to collect the FED from these services, the Federal Excise Act authorises the tax department to initiate recovery proceedings against the service providers.