SHC moved against SRB’s tax notices

KARACHI: Textile contract manufacturers have moved the Sindh High Court (SHC) against tax notices from the provincial revenue collection authority, arguing they already pay taxes to the Federal Board of Revenue (FBR) empowered to collect sales tax on goods, industry officials said on Thursday.

Textile toll/contract manufacturers prayed to the high court that toll manufacturing is well-covered under the ambit of manufacturing and supplies of goods and couldn’t be treated only services. They requested the court to term recovery demand of Sindh sales tax on account of toll manufacturing as illegal and incorrect.

Toll manufacturers are engaged in the business of processing raw materials and semi-finished products and production of finished products at their manufacturing facilities. Under the Sales Tax Act 1990, toll manufacturing comes under the ambit and definition of manufacturing, which empowers the FBR to collect sales tax from the manufacturers. Sindh Sales Tax on Services Act 2011, however, defines toll manufacturing as service and therefore Sindh Revenue Board also claims sales tax from the toll manufacturers.

Industry sources said the dispute over jurisdiction of levy and collection of sales tax between federal and provincial governments left textile sector toll manufacturers in a fix, as both FBR and SRB claim sales tax from the toll manufacturers.

Barrister Akhtar Hussain Jabbar, representing toll manufacturers, said there is an apparent tug of war between the FBR and the SRB and officers under both the authorities are demanding tax on toll manufacturing business.

SBR has approached the FBR to resolve the policy issues to avoid double taxation on the taxpayers. But, till date the issue has not been resolved and the SRB is demanding the tax considering it to be a service.

“The dispute is between FBR and SRB, which they should resolve among themselves,” Jabbar added. “It is inappropriate to burden the taxpayers with double taxation. The demand made by SRB comes within the domain of federation thereby such demand is against the basic structure set up through the 18th amendment into the constitution.”

The FBR, vide its clarification addressed to KCCI president, said the federation has the right to levy and collect sales tax under Act of 1990 on processing of goods.