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FBR refuses to write off PIA’s tax liabilities

By Shahnawaz Akhter
April 20, 2021

KARACHI: The Federal Board of Revenue (FBR) has refused to write off tax liabilities of Pakistan International Airlines (PIA) and reconciliation is a prerequisite to the proposed restructuring of the airline that posted around Rs35 billion losses last year, according to people familiar with the matter.

The PIA is required to pay an outstanding amount of multiple years to the FBR, sources said on Monday.

“Rs14 billion that doesn’t include late payment penalty is payable under federal excise duty (FED),” said a source. “The amount would be much higher if penalty five-time the FED payable is included.”

The PIA said the tax department had raised demand of Rs14.4 billion till year 2019, which included penalty amount. The airline said the demands were raised on the issue of late payment of FED, collection of FED at incorrect rate, incorrect apportionment of input tax and failure to collect FED on carriage of goods/mail of Pakistan Post.

“The company has paid an amount of Rs25 million in this regard which is considered fully recoverable,” the airline said in its financial report. “The company filed appeals and Appellate Tribunal Inland Revenue remanded back the appeals, which was still pending. Based on the consultation with the legal advisor, the management believes the case will be decided in the favor of the company.”

No aggregate payable amount was mentioned in the report. The airline has been in losses for the past several years. Direct tax liabilities are very nominal. The sources said the FED amount is not part of PIA revenue as the airline collects this amount from passengers on behalf of the FBR. The Economic Coordination Committee (ECC) of the cabinet had approved the restructuring plan to make the PIA a profitable organisation. However, the ECC directed to reconcile the FBR liabilities before presenting the restructuring plan to the federal cabinet.

The FBR sources said the airline had requested the tax authorities to write off the payable considering the massive losses of the airlines. However, the tax authorities said there was no provision to write off the tax liabilities.

The airline is a public entity and therefore the government could make book adjustment of the liabilities, according to the FBR sources. “But in any case, the payable has to be reflected in the FBR revenue collection,” a FBR official said requesting anonymity. The PIA on Monday reported financial results for the year ended December 31, 2020. The airline declared Rs34.6 billion after tax loss for the year compared with the after-tax loss of Rs52.6 billion in the preceding year. The PIA has been defaulting on the tax payment for the last many years.

“The ECC communicated its decision through its letter dated July 12, 2012, directing the company and the FBR to reconcile the outstanding amounts and meanwhile the date for payment of outstanding dues in respect of FED, shall be deemed to be extended till further consideration by the ECC,” the PIA said in earnings announcement. The PIA pointed out various disputes with tax authorities on payment of outstanding related to multiple years.