Govt, foreign investors discuss ST input adjustment

KARACHI: Tax authorities and foreign investors are broaching a critical issue of sales tax input adjustment, which was recently disallowed by the government and feared to puff up the cost of doing business, sources said on Monday.   The sources said a team comprising Advisor to Prime Minister Haroon Akhtar Khan, Member Inland Revenue (Policy) and other senior officials at the Federal Board of Revenue held a number of meetings with the office bearers of the Overseas Investors Chamber of Commerce and Industry, American Business Council and the chairman of Sindh Revenue Board.

They said the key point of the discussions was the recent amendments made through the Finance Act, 2016 into the Sales Tax Act, 1990, which disallowed sales tax input adjustment on services or tax collected on them by provincial authorities.

As per the amendments, the provincial input tax would not be adjustable against federal sales tax. This facility was allowed since March 2014. The taxpayers said this will imply dual direct taxation in the country since the indirect taxes paid to provinces would not reduce the incidence of sales tax paid to the federation.

The foreign investors informed the tax authorities that the change would result in litigations in addition to increase in the cost of doing business.

The extension of imposition of super tax was another major issue that came under discussion, said the sources. The super tax was imposed, through the Finance Act, 2015, on banks and other taxpayers, having income of Rs500 million or above, at the rate of four percent and three percent, respectively for tax year 2015 only. However, through the Finance Act, 2016, the levy was extended to the tax year 2016.  Other measures taken by the government, which could hamper foreign investment, were also discussed during the meetings.