Agreement between federal, provincial revenue authorities on sales tax input adjustment comes to an end

KARACHI: An agreement between federal and provincial revenue authorities has comes to an end after the implementation of Finance Act, 2016 which disallows sales tax input adjustment, tax experts at Karachi Tax Bar Association said on Wednesday.
In a presentation on changes made to Sales Tax Act at KTBA on Wednesday stated that through the Finance Act, 2016, the definition of ‘input tax’ given in section 2 (14) of the Sales Tax Act, 1990 has been amended to exclude the Sales tax paid under respective Provincial sales tax laws.
As a result, provincial input tax (including Islamabad Capital Territory Sales Tax) is no longer adjustable against Federal Sales Tax liability. In a conference arranged by the Bar in January 2014, representatives of all the Provincial Authorities and Federal Board of Revenue (FBR) agreed to resolve the matter of input adjustment. As a result of that, MoU, was signed between Federal and Provincial Governments, and SRO 212(I)/2014 dated March 26, 2014 was issued.
Now in view of amendment made through Finance Act, 2016, SRO 212(I)/2014 Dated March 26, 2014 has also been unfortunately withdrawn.
This is a harsh measure on behalf of federal government, in view of inability of Provincial and federal Revenue authorities to resolve their differences. As a result, taxpayers are now suffering as they have been deprived off their legitimate right to claim input tax against the Federal Sales Tax liability.
In view of above measure, cost of doing business will increase, resulting in loss of revenue for both provinces as well as Federal Government. This will also result in litigation as the taxpayers have now already approached the courts, which have granted interim stay.
The bar welcomed the initiative of FBR to resolve this matter and suggest that the agreement with Provincial Authorities should be reached at the earliest. The bar suggested that the example set by India also needs to be looked into, where GST under VAT mode has been implemented across India. The concept of GST council and single collection / registration agency adopted in India is also a solution for our problems.

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