According to a Business Recorder exclusive, the Ministry of Petroleum and Natural Resources has approached the Ministry of Finance to immediately resolve the issue of input tax adjustment claims of provincial sales tax authorities/Federal Board of Revenue (FBR) on inter-city transportation of petroleum and products by road/pipeline/conduit. The Oil Tankers Contractors Association (OTCA) has urged the relevant parties to this issue, notably the Ministry of Petroleum and Natural Resources, the Ministry of Finance/FBR and the four provincial revenue authorities to resolve it promptly or else face disruption of the supply of petroleum and products throughout the country due to a strike by its members.
The issue has surfaced because the Federal Board of Revenue (FBR), under the administrative control of the Ministry of Finance, remains focused almost exclusively on meeting the budgeted revenue targets even if it entails riding roughshod over the federating units. It is this overarching FBR objective that accounts for the provision in the Finance Act 2016, effective 1st July this year, allowing services received by the oil companies to cost more as the provincial sales tax on services would no longer be adjusted with the sales tax on goods payable to FBR. In this context, it is relevant to note that the Finance Act 2013 had sought to deny adjustment of sales tax paid to the provinces as input by amending section 2(22A) of the Sales Tax Act. This amendment was struck down by the Lahore High Court and subsequently withdrawn by FBR in April 2014. In the Finance Act 2016 the federal government has once again resorted to this measure by amending section 2(7) of the Sales Tax Act. The adverse effect on the taxpayer remains the same. The measure, to say the least, is absurd and creates hurdles in the way of tax compliance by the taxpayer; it is likely to promote tax evasion by encouraging people to exit the tax net. In addition, this decision by the federal government simply strengthens the pervasive perception that the Centre takes decisions unilaterally and does not bother to consult/negotiate with the provinces on matters that relate to the federating units, including a province in which the PML-N enjoys an overwhelming majority.
One can only hope that the situation is not allowed to continue as was the case during 2014 when supply of petroleum and products to Punjab was severely affected leading to a blame game between different ministries with the public questioning the government why it scapegoated those not responsible in order to protect its ministers.
Business Recorder has supported the PML-N government's efforts to generate higher revenue; but has consistently urged higher reliance on taxing those individuals/sectors that are currently out of the tax net than the existing taxpayers. And finally, taxes must not be anomalous as the case of disallowing adjustments of input output reveals.