Provincial Sales Tax Authorities Confused Determining the Basis of Taxation

Written by  Published by:Pakistan Views Tuesday, 08 September 2015 10:26

KARACHI: The Karachi Tax Bar Association (KTBA) has drawn the attention of the Federal Board of Revenue (FBR) towards double taxation on some services on the bases of origin and destination, and sought to get all the provincial sales tax-collecting authorities on the same page.

The association said the Punjab Revenue Authority (PRA) and the Khyber Pakhtunkhwa Revenue Authority (KPRA) were issuing notices to the service providers registered with the Sindh Revenue Board (SRB) on the premises that some of their recipients are located in the respective provinces.

The services which are generally exposed to taxation at multiple jurisdictions are franchise, transport, commission and services provided by customs/clearing agents, container terminals, port operators, asset management companies, etc.

Provincial sales tax authorities differ on what should be the basis of taxation — origin or destination.

The KTBA said this anomaly in law has created much difficulty for taxpayers and they have no option but to pursue courts for resolution. It has suggested that provinces should resolve their differences on rights of taxability amongst themselves.

It added that Article 14 of the Constitution of Pakistan limits a provincial assembly’s legislative competence to its province only. Therefore, it cannot legislate and, resultantly, cannot even create a legal friction that makes an act taking place in another province amendable to its jurisdiction.

Article 137 of the Constitution further restricts the executive authority of a province to those matters with respect to which a provincial assembly has powers to make laws, the KTBA said.

The bar has suggested that a conceptual framework for cross/inter-provincial services should be agreed upon, in the light of international best practices, and keeping in view the economic environment of Pakistan.

As an interim measure, however, administrative direction can be issued that if tax has been deposited with one province, the other province should not press for payment of sales tax from a taxpayer on the same service.

Alternatively, the provincial sales tax authorities may also agree on a percentage of sales tax they will be entitled to receive on services which are presently taxable in multiple jurisdictions.

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