The Central Board of Revenue (CBR) has rejected the viewpoint of leading tax consultants that a federal tax would be introduced in the budget to levy value-added tax (VAT) on services sector, since CBR is already empowered to impose central excise duty in VAT mode on service providers under excise law. Official sources told Business Recorder on Friday that CBR is not levying 'Federal VAT' on services in the budget 2005-06. In the past, the department had imposed CED in VAT mode on services like shipping agents, advertisements on cable television/CCTV, telecommunication services, domestic travel by air and train. "Why CBR should introduce another tax in the presence of federal excise laws?" sources clarified.
A consultant recently claimed, "It appears that the new law of federal excise duty, the draft of which has already been released, will be used as a 'vehicle' to levy Federal VAT on services."
CBR officials said that the department may bring services into the sales tax regime either through CED in VAT mode or under the proposed Federal Excise Act, if vetted by the Law and Justice Division and subsequently approved by the Cabinet.
Under Sales Tax Act, 1990, the CBR has the authority to levy sales tax on goods. Tax authorities could also levy excise duty both on goods and services. However, excise duty in VAT mode is levied to enable the taxpayer to claim adjustment against their output tax liability, officials maintained.
CBR officials also rejected the observation of consultants that India has recently imposed federal VAT on 80 services. First, Indian tax authorities have now for the first time introduced the concept of VAT. Secondly, services were taxed in India by imposing 'service tax' and not federal VAT, which is a new concept in the neighbouring country.
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