KARACHI: The Federal Board of Revenue (FBR) and a top Chartered Accountants (CA) firm are at loggerheads over Rs.1.8 million in sales tax deductions on services rendered for automated data processing and audit work.
According to the details, the dispute stems from a contract awarded to the CA firm for the Audit of Pakistan Revenue Automation (Private) Limited. Following delayed payments, the firm sought legal recourse through the Islamabad High Court, which resulted in a court-directed payment of Rs. 60 million issued on June 27, 2024.
The timing of services and tax implementation is at the heart of the controversy. While the CA firm provided services between February 2019 and July 2019, payment was released in June 2024.
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The firm contended that the sales tax deduction was inappropriate since the relevant tax provision under the ICT (Tax on Services) Ordinance, 2001 became effective July 1, 2019 – after their services were completed.
The Directorate General IT & DT has sought clarification from the member (IR-Policy) regarding the legitimacy of the sales tax charges and the associated withholding.
“No response was received so far, highlighting potential administrative inefficiencies within the FBR,” sources said.
Adding complexity to the matter, sources revealed that despite objecting to the tax deduction, the CA firm had not reflected the invoices of the said service in their monthly sales tax returns since 2019. Additionally, neither the concerned commissioner nor field formation took action on the issue. However, the court has now been informed that the amount in question has been made available on the portal for adjustment in the forthcoming tax returns.
The situation is further complicated as other departments are making higher withholding tax deductions, reportedly influenced by the scrutiny from the Auditors General of Pakistan (AGP).
Sources informed that due to the lack of FBR’s effective monitoring mechanism for withholding tax deductions, the AGP was frequently identifying discrepancies in deduction amounts.
Furthermore, sources said that the absence of clear guidelines from the FBR, despite several requests, has created uncertainty for taxpayers and raised questions about the organization’s internal management procedures, highlighting broader concerns about tax administration and the need for improved coordination between withholding agents and tax authorities.
Copyright Business Recorder, 2024