Sindh, FBR at loggerheads over tax collection

KARACHI: Row over tax collection on services has stuck up billions of rupees since last August and officials expect dispute to rise during the year as the federal and the Sindh governments struggle with budget deficits and search for more revenues.

The Sindh Revenue Board (SRB) alleged that the Federal Board of Revenue (FBR) is violating the constitutional provisions and article 8 of the Seventh NFC Award by levying additional sales tax, which was already being collected by the provinces.

“The constitutional issue needs to be resolved, as the FBR is collecting 16 percent Federal Excise Duty (FED) on services in addition to Sindh Sales Tax (SST) imposed on the same services,” said an SRB official, requesting anonymity.

Though the FBR in circular said it “withdraws FED to the Sales Tax on Services receivable by the provinces to avoid double taxation”, after the passage of four years, in mid June, 2015, the premier tax body once again demanded FED, the official said.

He added that the FBR has also started sending notices to various tax payers, who were already paying sales tax to the province. “The demand made by the FBR from the stock brokers is around a billion rupees,” he said.

Stockbrokers’ association has also stopped paying sales tax due to double taxation; they said that there was confusion regarding the sales tax collection on services. The KSE brokers said they collected FED / Sales Tax on Services from clients and deposited it with the FBR, till June 30, 2011.

However, once the SRB was created in 2011, Sindh Sales Tax (SST) on Services Act 2011 became effective from July 1, 2011. All brokers got themselves registered with the provincial board, which the FBR encouraged and even helped with.

 “We were told that just place ‘S’ before the registration number allotted by the FBR and that would serve as our registration number for SRB,” said a broker.  “We stopped collection of FED on Services on behalf of FBR. We also started filing ‘Nil’ monthly returns to the FBR.”

The broker said they, however, again received notices from the field offices of the FBR, demanding FED on services for the last 4 years which they never collected.

“Despite hue and cry over this wrongful demand, the show cause notices were converted into orders, raising a demand of approximately one billion rupees against more or less 125 brokers,” he said. “We took the matter to Sindh High Court in August 2015 and the court has granted a stay in the matter till the final disposal of our petition.”

A Sindh government official said the provincial government is losing its revenue, as many tax payers have stopped paying due to the fear of double taxation. “Another challenge is to retrieve the amount from the federal board once it had collected it,” he said.

The official said even banks have been issued notices by the FBR for the same tax, however they have also requested federal government to resolve the issue. 

However, banks were paying sales tax since the promulgation of the Sales Tax Act by provinces on services rendered in Sindh, Punjab, Khyber Pakhtunkhwa, and Baluchistan, whereas they were paying FED in the federal capital.