Input tax adjustment: FBR initiates talks with SRB, PRA and KPRA officials

September12,2013

The Federal Board of Revenue (FBR) has started negotiations with the Sindh Revenue Board (SRB), Punjab Revenue Authority (PRA) and Khyber Pakhtunkhwa Revenue Authority (KPRA) to resolve the crucial issue of disallowing input tax adjustment by the FBR against provincial sales tax laws. Sources told Business Recorder that the officials of all three provincial revenue authorities/boards are expected to visit the FBR House on September 12 (today) on the said issue. It is expected that the officials of SRB, PRA and KPRA would present their legal viewpoint along with its impact on the persons registered under the provincial sales tax laws. The FBR is expected to maintain its stance on the issue of input tax adjustment against provincial sales tax laws as per Finance Act, 2013. In the Finance Act 2013, the Board has made amendment in the definition of provincial sales tax. According to sources, the existing definition of input tax in section 2(14) of the Sales Tax Act, 1990 refers to "Provincial Sales Tax", which is further defined in section 2(22A). The previous definition refers to provincial sales tax ordinances which were promulgated in the year 2000, out of which some have been rescinded. Cross-adjustment of input tax between federal and provincial sales tax requires formal agreement between the federation and provinces. Therefore, the definition of Provincial Sales Tax has been amended to enable the government to allow or disallow input tax adjustment against specified provincial sales tax laws through notification. No notification has been issued so far, they added. Tax experts were of the view that the electronic system of the FBR has disallowed input tax adjustment against provincial sales tax laws to be taken in sales tax returns for the tax period of July 2013. According to the details, it has been reported by taxpayers from all over the country that while filing their sales tax return for the month of July 2013 they have observed sales tax paid by them on services received from different service providers such as courier services, clearing agent, insurance etc were not allowed for input tax adjustment. The purchases against service providers have automatically been taken in the column of inadmissible input tax, resultantly taxpayers would remain deprived of their rights to claim input tax adjustment even on amount, where the tax was paid by them. The change took place in late August 2013. Taxpayers, who had already filed their returns, were able to claim input tax adjustment without any problem. Later, the system stopped allowing input tax adjustment, sources said. Experts said that the issue regarding input tax adjustment/refund on sales tax on services remained under debate of provincial revenue collection authorities and FBR since delegation of powers for collection of sales

tax on services to provinces by virtue of 18th Amendment from 2011 and since then controversy remains between provinces and FBR for modalities of cross adjustment, however, the right for adjustment of input tax by taxpayers was never challenged either by provincial government or FBR.