Manufacturing on toll basis: Provinces will continue to levy, collect GST on services: PRAs

ISLAMABAD: The Provincial Revenue Authorities (PRAs) have resolved that the provinces will continue to levy and collect the sales tax on services provided in the matter of manufacturing for others on toll basis.

In a communication to the Federal Board of Revenue (FBR), the Sindh Revenue Board (SRB) has asked the FBR to immediately withdraw the FBR’s letter dated October 28, 2021 on toll manufacturing.

The SRB has referred to a letter of the FBR issued to its field formations dated October 28, in which, the FBR had directed its field formations to start collecting sales tax on toll manufacturing.

According to the said FBR’s instructions issued to the field formations, the National Tax Council (NTC) in its meeting held on September 16, 2021 has decided that provinces shall not tax “Toll Manufacturing’’, which will rest with the FBR. As the sales tax on toll manufacturing falls under the domain of the FBR, it is therefore requested that necessary action may be taken for guidance of the taxpayers falling under respective field formations’ jurisdiction, the FBR’s instructions added.

ST on toll manufacturing to be collected

The SRB has informed the FBR that the provincial revenue authorities have resolved that the provinces will continue to levy and collect the sales tax on services provided in the matter of manufacturing for others on toll basis, in accordance with the respective provincial laws and rules until the decision about the non-levy of federal sales tax on the food/beverages served in hotels and restaurants located in provinces is simultaneously and explicitly endorsed by the FBR.

The SRB stated that a letter signed by the FBR has gone viral on the social and the print media.

The FBR did not endorse the said letter to any of the provincial revenue authorities (PRAs), including the SRB. While the services provided in relation to the manufacturing for others on toll basis are taxable under (1) tariff heading 9830.0000 of the Second Schedule to the Sindh Sales Tax on Services Act 2011; (2) tariff heading 9868.0000 read with Sr No 37 of the Second Schedule to the Punjab Sales Tax on Services Act, 2012; (3) tariff heading 9840.0000 read with S No 12 of the Second Schedule to the KP Finance Act, 2013; and (4) tariff heading 9816.0000 of the Second Schedule to the Balochistan Sales Tax on Services Act, 2010, none of the provincial governments/PRAs have issued any such exemption notification to justify the FBR’s stance that “provinces shall not tax on toll manufacturing, which will rest with the FBR”.

The PRAs, during their meeting in Islamabad on October 30, 2021, expressed their concern and dismay on the FBR’s aforesaid letter dated 28th October, 2021, which should not have been issued in view of the provinces’ jointly concurred letter dated September 18, 2021 and its enclosures issued by the SRB addressed to the chairman FBR.

GST on toll manufacturing: MoF, FBR and PRAs reach consensus

Response of the said letter dated 18th September, 2021, is still awaited.

Moreover, in the NTC meeting held on September 16, 2021, it was agreed that provinces shall not levy/collect sales tax on toll manufacturing services and the Federation shall, likewise, not levy/collect sales tax on the food/beverages served in hotels and restaurants located in the provinces.

The decision had an element of quid pro quo.

However, the FBR’s aforesaid letter dated 28th October 2021 does not mention the agreed decision about the non-levy of federal sales tax on the food/beverages served in provincial jurisdictions.

The PRAs, in the aforesaid meeting of October 30, 2021, also resolved that the SRB may communicate to the FBR the joint views and concerns of the PRAs and request the FBR to withdraw its aforesaid letter dated 28th October 2021, immediately, under intimation to all concerned, including the four PRAs.

The PRAs also resolved that the provinces shall continue to levy and collect the sales tax on the services provided in the matters of manufacturing for others on toll basis, in accordance with the respective provincial laws and rules until the decision about the non-levy of federal sales tax on the food/beverages served in hotels and restaurants located in the provinces is simultaneously and explicitly endorsed by the FBR, the SRB added.

Copyright Business Recorder, 2021