ISLAMABAD: A dispute has arisen between the Federal Board of Revenue (FBR) and Azad Jammu and Kashmir (AJ&K) tax authorities on deduction/ withholding of income tax and sales tax on the sale of goods, services, and contracts executed in AJ&K.
Sources told Business Recorder that the issue is related to the legal obligations of withholding agents making payment for contracts executed and supplies made in AJ&K.
The Ministry of Finance has sought clarification from the FBR whether the jurisdiction for the collection/ deduction of income tax and sales tax on the sale of goods, services, and contracts executed in AJ&K lies with the FBR or the AJ&K CBR.
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In this regard, FBR officials were of the view that since the incidence of tax falls within AJ&K; therefore, the tax should be deposited with the AJ&K revenue authority. However, the matter is being referred to FBR Member Policy on point of jurisdiction for a thorough review and careful consideration of the legal issues involved.
The FBR is needed to issue a necessary clarification for both the Ministry of Finance, as well as, AJK tax authorities.
Ministry of Defence has also informed Ministry of Finance about the issue.
The Commissioner Inland Revenue (North Zone) Muzaffarabad addressed to Military Accountant General (MAG) informing that Federal Board of Revenue (FBR) is the federal tax collecting arm of Government of Pakistan that collects income tax from all of four provinces of Pakistan except the territory of AJ&K, where it holds no jurisdiction to collect tax.
Central Board of Revenue AJ&K, established through AJ&K, CBR, Act 2020, is legally competent to collect taxes (including income tax) froth territory of AJ&K through field formations of Inland Revenue Department.
Commissioner Inland Revenue further requested to collect/ deduct income tax/ sales tax on prescribed rates on payments for purchases/ services/ contracts related to AJ&K and deposit in AJ&K CBR account instead of FBR.
Hence, MAG’s Office has requested this ministry to approach FBR for necessary clarification in the matter, the Ministry of Defence added.
Tax authorities of the AJK stated that AJ&K is a distinct tax entity from rest tax jurisdiction of mainland Pakistan due to its peculiar status. The FBR is the federal tax collecting arm of Government of Pakistan that collects income tax from all four provinces of Pakistan except the territory of AJ&K, where it holds no jurisdiction to collect tax. AJ&K Council Board of Revenue was empowered/ authorised legally to collect taxes from this territory.
Any organisation/ business venture company doing business at both tax jurisdictions; i.e., of FBR (covering four provinces of Pakistan) and AJ&K CBR (covering territory of AJ&K only) is taxed at both places for respective share of income earned from respective tax jurisdiction/ territory.
All the banks/ cellular companies/ Foreign Companies executing contracts on Mega Projects such as Neelum-Jhelum Hydro Power Project/ Mangla Dam upraising project/ Karot Hydropower Project and Federal Government institution working both in AJ&K and Pakistan are depositing withholding taxes with AJ&K CBR for the payments destined for territory of AJ&K and also use to file their separate withholding statements in AJ&K CBR Inland Revenue Department and FBR, respectively, for their share of business at both places.
Similarly the organisations/ companies/ institutions working simultaneously at both tax jurisdictions/ territories are deducting/ collecting taxes at their respective jurisdictional area and deposit in AJ&K Government account in case of AJ&K territory and FBR account in case of FBR tax jurisdiction- comprising mainland Pakistan territory (except AJ&K).
All these organisations/ banks/ companies/ institutions working at both tax jurisdictions, AJ&K and Pakistan, are filing statements at both jurisdictions on the basis of share of tax collected at both places, AJK tax authorities added.
Copyright Business Recorder, 2024