A major controversy has erupted among the Sindh government and three cantonment boards of Karachi over the “improper distribution” of taxes.
The three cantonments – Karachi, Clifton and Faisal – contend that the provincial government should give them a share in Octroi Zila Tax (OZT), property tax and professional tax according to an ordinance issued in 2006.
But the Sindh government claims these funds are meant for elected local councils and not for cantonments that are unelected bodies.
The Military Lands and Cantonment Department (ML&C) had written to the provincial government that it owes Rs1,127.714 million to the cantonment boards for the period from 1999-2000 to 2010-2011 on account of the OZT, insiders told The News on Monday.
The letter pointed out that at a finance division meeting held in Islamabad on February 16 last year, the ML&C had argued that except Sindh the other three provinces had been paying the Octroi share to the respective cantonment boards in compliance with the Presidential Ordinance No 1 of 2006.
When the OZT was abolished, the grant mechanism for distribution of its share (2.5 percent of General Sales Tax) was devised on the basis of the audited figures of 1998-1999, the provincial government pointed out in its reply to the letter.
The audited figures provided by the local governments department did not mention any data related to cantonment boards of Sindh and as such the share was determined taking into account the historic figures of district governments and town municipality administrations (TMAs) only.
“It is not possible to accommodate cantonment boards at the cost of the historically protected share of district governments and TMAs,” the provincial authorities contended. “The government has already not been getting its full share in accordance with the audited figures from the centre.”
There had been a shortfall in the receipt of OZT to the extent of Rs65.671 billion during the period from 1999 to 2008-9 and no amount was due toward the payment of over Rs1 billion to the cantonments, the province pointed out.
Cantonment boards were not elected bodies while the OZT share was meant for elected institutions, the letter said. The cantonments were neither local bodies according to Section 2 (XVI) of the defunct Sindh Local Government Ordinance, 2001, and nor constituted a part of Provincial Finance Commission in Sindh.
“Since cantonments were federally controlled bodies, the centre might allocate separate funds for them,” the Sindh government argued.
The authorities even contended that they incurred significant expenditures on maintenance of law and order in cantonment areas, for which the boards were liable to pay three to four percent of their tax receipts to the provincial government. But no payments have been received from the cantonments, the letter claimed.
Recovery of property tax in the cantonment limits was also a “contentious” issue, the Sindh government said.
Under Clause 3 of Article 3 of Presidential Ordinance No 13 of 1979, around 15 percent of the net proceeds of tax on annual value of buildings and lands was payable by the cantonment boards to the Sindh government. It has, however, not been implemented.
The letter pointed out that as per the 1973 Constitution, taxation on lands and buildings fell within the jurisdiction of provinces and no law or rule could override the constitutional provisions.
“The cantonments should transfer the pending liability of 15 percent net proceeds of the tax collected on buildings and lands in Sindh from 1979 till date,” the Sindh government demanded.
The authorities also proposed the presidential ordinance should be “revisited” in the light of the constitutional provisions.
While the Karachi cantonments were collecting professional tax under Section 60 of Cantonments Act of 1924, only provincial governments were empowered to levy taxes on professionals under Article 163 of the constitution, the government argued.
This has already been ruled in favour of the provinces by the Inter-Provincial Coordination Committee (IPCC) meeting on March 15, 2010.
Despite the ruling, the cantonments were still collecting professional tax in violation of the IPCC decision, the authorities claimed.
Sources privy to the development told The News that a meeting between government officials and cantonment boards was scheduled for March 27 at the Sindh Secretariat but it was put off over unexplained reasons.