Authorities discuss conflict over sales tax on services

KARACHI: Sindh Revenue Board (SRB) is discussing the issue of services sales tax on intercity transportation with federal and other provincial revenue authorities, a senior official said on Wednesday.

“We have already reached an agreement on sales tax collection from telecommunication services and advertisements,” Tariq Hussain Tunio, a SRB official told a seminar organised by Karachi Tax Bar Association (KTBA) on withholding of sales tax under federal and provincial laws.

KTBA hosted the session to highlight the issues faced by withholding agents, who collect tax on behalf of federal and provincial revenue authorities and are facing fine and penalties for non-compliance.

SRB believes that collection of services sales tax should be origin-based. “But, if Punjab wants the collection on destination basis SRB is ready to discuss the issue to resolve taxpayers’ problems,” Tunio added.

The SRB official said the provincial revenue authority is preparing to challenge the Sindh High Court’s decision to ban sales tax on rental property in the Supreme Court.

KTBA members argued that SRB is still collecting sales tax on rental.  What would be the refund procedure if the apex court upheld the judgment of the higher court, they questioned.

Zeeshan Merchant, general secretary of the Karachi Tax Bar Association said withholding agents face default surcharge notwithstanding the tax bodies receive the full amount of tax on such transactions.

“If the amount is paid then the withholding agent should not be penalised.” Fazal Abrejo, chief commissioner at Corporate Regional Tax Office Karachi said a withholding agent is liable to default surcharge if he fails to deduct tax on time.

Mazhar Saleem Shah, a chartered accountant said withholding sales tax is a deviation from the international practices of value-added tax. 

“Initially the scheme was introduced in 2007 to collect sales tax against supplies made to government organisations,” Shah said. “Later, the scope was extended to cover other categories of withholding agents.”

He further said provincial authorities also adopted the withholding sales tax regimes, which created multiple problems. Shah said media channels, for example, are facing withholding sales tax issue. “Media channels are based in different cities and the advertisements are aired all over the country,” he added.

“How shall we determine the place of taxation and exchequer and where should withholding agents deposit sales tax.”