Customs authorities have decided to challenge the office order of Large Taxpayer Unit (LTU) Karachi empowering Inland Revenue (IR) officials to monitor sales tax and federal excise duty collection on imports cleared from Model Customs Collectorates (MCC) Karachi.
Sources told Business Recorder here on Thursday that customs officials of the Federal Board of Revenue (FBR) have serious concern over the office order of LTU Karachi dated November 12, 2012 to constitute a committee of IR officials for monitoring sales tax and the FED collected at the import stage.
The three member committee would monitor sales tax/FED collected on imports cleared through MCC Appraisement Karachi; MCC Preventive Karachi and MCC Exports Karachi and MCC PaCCS Karachi and MCC Port Qasim Karachi. Through this order, the LTU Karachi has further directed the committee to co-ordinate with the customs department for collection of sales tax/FED on imports.
According to the sources, such a decision to collect sales tax by the IR officials is unlawful and without legal backing. The customs authorities will take up the matter with the FBR Charmin as the customs officials at the import stage are responsible to charge, work out and collect sales tax under section 6 of the Sales Tax Act 1990. They were of the view that sales tax collection on imports is revenue collected by the efforts of customs machinery at ports.
The credit of sales tax (imports) goes to the customs department as per section 6 of the Sales Tax Act, 1990. As per this section, the sales tax in respect of goods imported into Pakistan shall be charged and paid in the same manner and at the same time as if it were a duty of customs payable under the Customs Act, 1969. As the section 6 of the Sales Tax Act, 1990 is very clear on the issue, the sales tax collection on imports should be treated as performance of the customs department. Thus, practically the customs department is collecting this tax on imports and the credit of the same should be given to the customs collectorates.
On the other hand, Inland Revenue officials were of the view that the sales tax on imports is part of the overall sales tax collection of the IRS Wing. The targets assigned to the Regional Tax Offices etc included both the sales tax collected on domestic consumption as well as import stage.
The FBR has fixed monthly targets of the field formations on the basis of sales tax collected at both these stages. It is the responsibility of the IRS officials to collect sales tax at local and import stages and credit of the same goes to the IRS. As this is the revenue of IRS, it is rightly reflected under the sales tax head of account. Customs authorities have strongly contested the viewpoint of the IRS officials on the issue with the argument that customs has a separate head of account ie "02012" and all customs duty has been deposited in this head.
However, sales tax has two components, ie, sales tax at local stage and sakes tax on imports. Both sales tax at local stage and imports have single head of account. If there are separate head of accounts for sales tax on imports and that collected on local supplies, the dispute could be resolved.
Sources said that the customs officials do not want to show sales tax collected at import stage under the separate head of account (02012). Contrary to this, the credit of collection of sales tax on imports should be given to the customs department as they are collecting the levy and legally Sales Tax Act, 1990 has also allowed for treating the sales tax collected on imports, as customs duty. The FBR should continue to deposit the sales tax on imports under the sales tax head of account, but the credit should be given to the authority responsible for collecting the same at import stage.