FBR power to issue SRO in absence of cabinet questioned

KARACHI: Tax experts on Tuesday raised question over the legality of statutory regulatory order (SRO) issued by the Federal Board of Revenue (FBR) to increase sales tax rates on petroleum products in absence of the federal cabinet.

FBR, late Monday, issued a SRO to revise up sales tax on high speed diesel to 40 percent from 33.5 percent and on petrol to 23.50 percent from 20.50 percent. The new tax rates have been implemented for August 2017, it said. 

In July, the federal cabinet, comprising of ministers, was dissolved after the Supreme Court disqualified the prime minister on non-disclosure of assets. FBR is bound to take permission from the cabinet or minister in-charge prior to issue a SRO.  

Tax officials said the revenue body is required to get an approval from the federal government.  “It is surprising how FBR can issue such notification,” an official said on condition of anonymity. “In the present circumstances the issuance of the SRO is illegal.”

A leading tax expert Ikramul Haq also threw weight behind the argument.  “As per the constitutions no tax should be levied for the purposes of the federation except by or under the authority of the Act of Parliament,” said Haq, who works as tax consultant at law firm Huzaima and Ikram.

Haq said provisions under Section 3 of the Sales Tax Act, 1990 were deliberately not amended to give FBR space to change the tax rates. Some FBR officials, however, said the FBR has power to issue such notification.

FBR said it had issued the notification while exercising powers conferred by clause (b) of sub-section (2) and sub-section (6) of Section 3 of the Sales Tax Act, 1990. 

“The federal government or the board [FBR] may, in lieu of the tax under sub-section (1), by notification in the official Gazette, levy and collect such amount of tax as it may deem fit on any supplies or class of supplies or on any goods or class of goods and may also specify the mode, manner or time of payment of such amount of tax,” the board quoted the section as stating. 

In the budget for 2017/18, the government has delegated the power of specifying sales tax rates to FBR. 

Zeeshan Merchant, secretary general at Karachi Tax Bar Association said there must be logical grounds behind issuing of SRO without the approval of the federal cabinet or minister in-charge.

Merchant, however, said there are recorded judgments of the apex court regarding no power of FBR in issuing SROs.

The finance division, considering the disqualified cabinet, kept the rates of petroleum products unchanged till a decision by the competent authority.  

Oil and Gas Regulatory Authority recommends prices of petroleum products every month, while FBR also recommends changes in sales tax rates. The Economic Coordination Committee of the Cabinet approves the rates after consultation.