FBR withdraws return non-filing cases against service providers

KARACHI: Federal Board of Revenue (FBR) has withdrawn legal cases related to non-filing of returns against service providers, who exclusively render services within a provincial jurisdiction, sources said on Thursday.

The sources said FBR allowed sales tax de-registration of at least 42 customs clearing agents – applicable from July 1, 2011 – who contested that they had not provided services within the federal jurisdiction and thus they were not liable to file returns with the FBR.

Filing monthly sales tax returns is a mandatory requirement for all the registered sales tax individuals under the federal and provincial sales tax laws. On non-compliance, the service providers are required to pay fine and penalties.

The 18th amendment into the constitution in April 2010, however, delegated the power of collecting sales tax on services to the provincial governments. The Sindh government was the first to establish its separate tax collection authority, namely Sindh Revenue Board, while the provincial assembly passed the Sindh Sales Tax Act 2011.

After the passage of the law, the taxpayers complained of being squeezed by both the federal and the provincial revenue authorities as they were asked to file returns to both the authorities.  The service providers said after the 18th amendment they were liable to file sales tax returns with the provincial authorities. They alleged that FBR, however, forced them to file sales tax returns with the provincial as well as federal authorities. But, since several service providers failed to file their sales tax returns with FBR they received non-compliance notices with fine and penalties.

FBR and Karachi Customs Agents Association held a number of meetings to resolve the issue. A meeting early this year agreed that service providers should file nil-returns in order to avoid fine and penalties. Further, it was decided that the FBR would compile a list of service providers who are exclusively providing services within the provincial authorities.  Finally, realising the irritants faced by the service providers in filing their returns since July 2011 FBR, after scrutiny, allowed de-registration, which automatically resulted in withdrawal of recovery notices in case of non-compliance of returns.