The Federal Board of Revenue has turned down two major proposals of Pakistan International Airlines (PIA) to reduce minimum tax from one percent to 0.5 percent along with withdrawal of the federal excise duty (FED) on the international air travel.
Sources told Business Recorder here on Friday that the FBR will inform the Ministry of Defence about the implications of proposed tax concessions which would create distortions in the tax regime and encourage other sectors to plead their cases for special tax treatments, concessions and exemptions against government''''s policy. The proposal to withdraw the FED on the international air travel on the basis of territorial or geographical jurisdiction and ''''services provided abroad'''' by the airline has no legal justification.
According to the sources, the FBR has examined the proposals of the national flag carrier and final comments have been drafted for the Ministry of Defence. The FBR has found that FED is chargeable on international travel originated from abroad to Pakistan since September 1, 2007 vide clause (b) of S.No 3 of Table 2 of the First Schedule to the Federal Excise Act, 2005. Moreover, Rule 41A of the Federal Excise Rules, 2005 is quite explicit in this regard. The Sub rules (6), (7) and (11) of Rule 41A of Federal Excise Rules, 2005 bind the airlines to charge and pay FED in respect of passengers travelling to Pakistan from abroad. Sub rule (11) provides that no airline or person in-charge of the aircraft should board any passenger on the aircraft unless the passenger pays the excise duty.
In the light of above provisions of law and rule, there is no ambiguity about the levying and charging of FED in respect of passengers travelling from abroad to Pakistan. It is the airline, which is responsible for collection and payment of the duty. There is no weight in the argument regarding the territorial or geographical jurisdiction likewise there is no weight in the arguments regarding the competent court of jurisdiction. This is a Pakistani tax and is payable on travel to Pakistan. It is a sort of entry tax through air into Pakistan. Therefore, the arguments regarding the ''''service provider abroad'''' stands nullified. This tax is challengeable in the Courts of Pakistan, as it is chargeable under a Pakistani Law and Rules. Any special treatment (exemption to the said airline will not only create distortion in the tax structure but will also defeat the conscious policy of the government) focused on collection of duty on foreign travel, FBR stated.
Moreover, extending such exemption will create bad precedent and other sectors may follow suite by using the same logic to apply for exemptions in such cases where FED has either not been collected or is collected partially, FBR stated. The FBR added that the airline''''s request for reduction in minimum tax rate from one to 0.5 percent under Section 113 of the Income Tax Ordinance, 2001 cannot be acceded to as the subject request does not carry merit, the FBR concluded.