THURSDAY AUGUST 18: Landmark achievement: FBR, SRB finally resolve issues

ISLAMABAD: In a major breakthrough on sales tax collection on services, the Federal Board of Revenue (FBR) and the Sindh Revenue Board (SRB) on Wednesday held successful negotiations regarding sales tax on services sector while the SRB agreed to give its consent, authorising the FBR to collect sales tax on telecom and financial services, advertising services, construction and franchise services.
Sources told Business Recorder here on Wednesday that the FBR and the SRB had made a landmark achievement by resolving all sales tax related issues in a meeting held at the FBR House under the chairmanship of FBR Chairman Salman Siddiq and attended by Asrar Rauf, Additional Secretary Revenue Division, Member SRB Mumtaz Ahmed Shaikh, senior SRB officials, FBR Chief Inland Revenue, sales tax officials and representatives of the Pakistan Revenue Automation Limited (Pral).
The FBR and the SRB have mutually agreed that the SRB would issue a consent letter to the FBR, authorising it to collect sales tax on services in accordance with the Group-II and Group-III of the "Record Note" agreed between the federation and provinces. Group-II included telecommunication services and Group-III included financial services such as banking, insurance and stock market operations, advertising services, construction services, franchise and other services that constitute a significant proportion as inputs into other supplies and involve transactions across provinces.
The competent authority of the Sindh government would give its consent letter to the FBR for the collection of sales tax on the said services and the FBR would abolish federal excise duty (FED) on services mentioned in the Federal Excise Act. The FBR will collect sales tax on the services specified in the Group-II and Group-III of the "Record Note". As soon as Sindh government would issue its consent letter to the FBR, the federal tax authorities would immediately withdraw the FED on services under the Federal Excise Act.
The FBR and the SRB have also agreed that the process would be completed by August 25, 2011 to ensure collection of sales tax on services as agreed between the two sides. The consent letter of the Sindh government is expected to be issued to the FBR before August 25, 2011 to avoid any delay in the collection of sales tax on services.
The SRB is also expected to issue a notification under the Sindh Sales Tax on Services Act- 2011 to clarify status of sales tax collection on services of Group-II and Group-III of the "Record Note" for the general public.
The FBR and the SRB have also reached understanding that the Sindh province would collect sales tax on stand-alone services as per Group-I of the "Record Note", which would not involve any cross provincial adjustments. These include such services that neither involve transactions across the provinces nor constitute a significant proportion as inputs into other supplies. In case any service would involve cross provincial adjustments, the service would be covered under the Group-III of the "Record Note" for the collection of sales tax on such service by the FBR.
The FBR and the SRB have also reached consensus on the implementation of the above said decisions from July 1, 2011. The sales tax collection on telecommunication services, financial services such as banking, insurance and stock market operations, advertising services, construction services and franchise would be implemented from July 1, 2011.
The FBR has also said that a uniform rate of 19.5 percent sales tax on telecommunication services would be applicable. In this connection, Khyber Pakhtunkhwa has increased the rate of sales tax from 16 to 19.5 percent on telecom services. The provincial government of Balochistan has yet to increase sales tax rate from 16 to 19.5 percent on telecom services. Similarly, Punjab will also increase sales tax rate from16 to 19.5 percent on telecom services.
According to sources, the federal government and provinces including Sindh have agreed to introduce a single rate of 19.5 percent on telecom services to remove ambiguity or distortions in tax collection from telecom sector. It is important to mention that the meeting between the FBR and the SRB officials was held in a very cordial atmosphere. They successfully resolved issues of sales tax on services, which would not only remove confusion among the taxpayers, but also ensure smooth collection of sales tax from the services sector.