Taxpayers moving courts against tax on royalty

KARACHI: Taxpayers are moving courts on the dual authorities enforcing tax on royalty paid by multinational and other franchises, sources said on Friday.

The sources said that the taxpayers were moving courts following the notices issued by the Federal Board of Revenue (FBR) for demanding federal excise duty (FED) on royalty paid by concerned companies.

Interestingly, payment of royalty has been made subject to services, and the Sindh Revenue Board (SRB) was also collecting it under provincial statutes.

The sources said that taxpayers were irked on enforcement by federal and provincial revenue authorities, which had failed to settle their disputes despite the passage of the 18th Amendment to the Constitution in year 2010.

The sources in the FBR said that Large Taxpayers Unit (LTU) Karachi recently served scores of notices to taxpayers directing them to pay FED on royalty. The accumulative amount of the notices is around Rs1.2 billion.

The notices have been sent to banks, oil companies, multinational companies, and other franchises.

The sources said that some of the taxpayers had approached the court in this matter.

Under the Federal Excise Rule, 2005, the duty has to be paid by the franchisee, or as the case may be, the head office of the franchisee at the rate of ten percent of the value of taxable service, which shall be the gross amount or the franchise fee or the deemed franchise fee or technical fee or royalty charged by the franchiser from the franchisee for using the right to deal with the goods or services of the franchiser.

Sources in the SRB said that any person having a registered office in the province and making the payment of franchise/royalty from its registered office, is required to get registered and to pay sales tax at 10 percent on franchisee fee on the entire amount that is being remitted from Sindh on account of franchise/royalty service received or consumed not only in Sindh but the rest of Pakistan.

The three provincial revenue authorities and FBR in 2014 reached a Memorandum of Understanding (MoU) to resolve disputes over inter-federal/provincial tax adjustments. However, despite the resolution many issues pertaining to classification of sales tax services and federal tax remain disputed.