The Federal Board of Revenue (FBR) has conveyed to provinces that the provincial authorities can also review corresponding provisions in their respective laws in response to the Finance Bill 2016 amendment to disallow cross-adjustment of input tax against provincial services.
Sources told Business Recorder here on Saturday that Chairman FBR Nisar Muhammad Khan made these remarks during a recent meeting of the FBR with the Punjab Revenue Authority (PRA) to discuss and resolve the issue as highlighted by the Minister for Finance, Government of Punjab.
Moreover, the FBR has rejected the provincial interpretation regarding capital gains taxation on the sale of immovable property through the Finance Bill 2016. The FBR responded that omitting the phrase “on capital gains” from S. No 50 of the Federal Legislative List in the Constitution only removes capital value tax on immovable property from the purview of federal legislative powers. Capital gains are globally treated as income, and taxes on capital gains are also treated as income taxes. As per the constitution, all taxes on income, except agricultural income, are within the competence of federal legislature, the FBR added.
The first issue concerns the deletion of provincial sales tax from the definition of ”input tax” in the Sales Tax Act 1990. During the meeting, Chairman, FBR, explained the reason for the proposed deletion of the clause. Tax authorities informed provincial authorities that MoUs were signed with the provincial revenue authorities to settle cross-input tax adjustments. But these Memoranda of Understandings (MoUs) were being rendered ineffective because one province is insisting on irrational reconciliation parameters through which input adjustments worth a few thousand rupees only get reconciled against adjustments of Rs 30 b. Accordingly, it was decided to propose to omit a related clause allowing cross-adjustment of input tax. He also highlighted that the provinces could review corresponding provisions in their respective laws, as the sources quoted the Chairman FBR as saying.
The Punjab Revenue Authority (PRA) Chairman stated that the proposed amendment would affect the businesses. Therefore, the same may be reconsidered. He maintained that if the omission is carried out as proposed, PRA would also review the corresponding clauses of its law. He, however, maintained that the omission should not affect the past adjustments made and that FBR should finalise the settlement process as was underway. The FBR Chairman assured that the reconciliation process would be completed and efforts would be made to finalise the same in July 2016.
The second issue concerns the advance tax under proposed section 236W from provincial sales tax registered persons. On the said issue, the PRA Chairman stated that the proposed new section was a harsh measure and it would have a cascading effect. He maintained that FBR has all the provincial data available through Pakistan Revenue Automation Limited (PRAL) and can collect the proposed tax directly. He also expressed apprehension that in the event of some lapse in the required collection, FBR authorities may resort to some coercive measures, as has been observed in the past.
The FBR Member (SPR&S) informed that the proposed measure was only for non-filers and that the tax to be collected was adjustable. He maintained that FBR would consider providing in the law that no coercive measure be taken against the collecting agent for the proposed section. The Chairman, FBR, assured PRA that their reservations have been noted and the same will be duly discussed. On the insistence of the PRA Chairman, he agreed to propose an alternative mechanism for collecting income tax from the service providers registered with the provincial revenue authorities by making suitable amendments in the Finance Bill, which will absolve the provincial revenue authorities from the proposed role of withholding agent. However, this proposal would be subject to the approval of the Federal Government.
Source: Business Recorder
Speak to Mayhar Kazi today regarding your cross-adjustment of input tax queries.
