‘Issue of declaring production/transmission of electricity as ‘goods’ must be referred to CCI’

ISLAMABAD: The Senate Standing Committee on Finance has recommended that the issue of declaring production/transmission of electricity as “goods” under the Sales Tax Act, 1990 should be referred to the Council of Common Interests (CCI) or National Tax Council (NTC).

Senate Standing Committee on Finance, Revenue and Economic Affairs met on Tuesday under the Chairmanship of Senator Saleem Mandviwalla to consider and finalize the recommendations on the Finance Bill, 2022, here at the Parliament House.

Mandviwalla asked the FBR why the updated Finance Bill, 2022 with the changes made by the federal cabinet after the federal budget (2022-23) was not presented before the committee.

The Federal Board of Revenue (FBR) Chairman, Asim Ahmad, responded that the FBR has presented the Bill 2022 which was tabled before the parliament. The updated Finance Bill 2022 with the amendments made by the cabinet will also be submitted before the committee.

During the review of the Finance Bill 2022, the committee Tuesday ruled that the FBR cannot unilaterally declare production/transmission of electricity as “goods” for collection of sales tax through Finance Bill 2022 but the matter should be referred to the CCI or the NTC.

The production transmission and distribution of electricity which was brought into the ambit of the definition of goods was unanimously omitted by the committee.

The meeting presided over by Senator Mandviwala while taking up the proposed amendment in the Finance Bill 2022 with regard to production, transmission, and distribution of electricity was informed that this amendment was proposed in the background of double taxation on Matiari as provinces are collecting sales tax on services and the federal government has been collecting sales tax on goods. This entails double taxation by the federal and provincial governments, whereas, electricity is a federal subject and the amendment was moved to do away with double taxation.

The FBR Member Inland Revenue Policy informed the committee that a power company received notices from two provincial revenue authorities/board for recovery of sales tax on production, transmission and distribution of electricity by treating it as service. This resulted in double taxation which needs to be corrected through the Finance Bill 2022.

Chief Inland Revenue informed that under the Constitution, electricity is a federal subject. In Finance Bill 2022, we have already resolved the issues of collection of sales tax on restaurants and toll manufacturing. Provinces would now collect sales tax on restaurants and FBR on toll manufacturing, she added.

Upon this, Senator Farooq H Naek said that the FBR cannot unilaterally declare production, transmission and distribution of electricity as “goods” under the Sales Tax Act 1990. This is an issue between federal government and provinces, therefore, the relevant forum for its resolution is either CCI or NTC. The committee recommended that the issue of sales tax to be referred to the CCI or the NTC.

The FBR Member IR (Policy) informed that the jewellers would pay a fixed amount of Rs50,000 sales tax per month with electricity bills. There are around 29,000 jewelers and all such jewelers would be considered as Trier-I category retailers.

On the issue of taxing 2.5 million retailers through electricity, the chairman said that “you are not doing this in erstwhile federally administered tribal areas (FATA)”. The chairman of the committee said that last time it was discussed and recommended that FBR should start collecting from the units on the basis of consumption of power through electricity bills. He regretted that the government wanted to charge retailers but does not wanted to collect from units set up in erstwhile FATA.

Responding to this, the FBR Member Inland Revenue Policy informed the committee that the units having zero-percent electricity bills in tribal areas were given zero percent quote of duties and taxes free import of industrial raw materials and inputs.

Senator Dilawar Khan said that FBR has WeBOC import data and can easily assess the capacity of the steel units but regretted that the tax authorities were not touching this area. “if you really wanted to collect tax then you have to touch this area”, he added. The committee approved the proposal to restore sales tax exemption on UN, diplomats as well as machinery and equipment.

The meeting commenced by examining the Customs Act, 1969 and various proposals forwarded by members of the upper House were taken into consideration. The committee was briefed by the Custom Authorities on various insertions of new clauses definitions/objectives.

The Senate committee emphasized making the law more clear and comprehensive enough to avoid the chances of misuse due to ambiguity. “Enforcement of taxation laws should be through bills and not ordinances”, Chairman Finance Committee Senator Mandviwalla maintained.

The committee was briefed by the Customs Authorities that the volume of trade is increasing and 74 government agencies aboard has come together through an online regulatory system on one-time basis submission of documents and termed it as a golden jump in terms of trade volume.

It was also briefed that the insertion of new clause on “unauthorized access” was introduced in order to align the Customs Act, 1969, with the Pakistan Single Window (PSW) Act. The committee recommended that the definition “un-authorized access” is open-ended and can make means to create offences therefore proposed clarity in the definition.

The committee was also briefed that the essential commodities like food items, fertilizers and other items of daily use are prone to smuggling out of the country through all international borders due to disparity in their prices in comparison with the international market, smuggling of items may result in their shortages in the domestic market causing exponential hardship to the common man of the country, therefore, proposed to define “essential commodities”.

The committee was also briefed on the Import Policy Order, 2020, which provides option of change in consignee name for frustrated cargo by Customs Authorities while Customs Act, 1969 only provides option of re-export or re-shipping of frustrated cargo, therefore, the amendment has proposed to align customs act 1969 with Import Policy Order, in order to resolve the congestion caused on the port by the un-owned cargoes.

Leader of the Opposition Senator ShehzadWaseem sought details particularly on defining the “changed consignee” and under what circumstances. The amendment was deferred for further explanation by the Customs Authorities in the next meeting.

The amendment of the collective customs to time to time fix the period after the expiration of which goods left in any customs house, shall be subject to payment of fees, was unanimously omitted by the Senate Committee.

The Sales Tax Provision of Finance Bill, 2022-23 was also taken under consideration.

The tax on goods imported by various agencies of the United Nations, Diplomats, Diplomatic missions, and other privileged persons and organizations which are covered under various acts and regulations have been exempted. Tax on silver and gold in unworked condition, tractors, seeds for sowing and imported machinery equipment for exclusive use was also exempted. Senator ZeeshanKhanzada gave descending note on the exemption of taxes on gold, silver and sowing seed, whereas, Senator SaleemSabzwari only gave his descend note on the exemption of tax on sowing seed.

The meeting was deferred to meet again on Wednesday at 10:30 am for further deliberation on the sales tax provision of the Finance Bill, 2022

The meeting was attended by the Leader of the Opposition, Dr Senator Shahzad Waseem, Sherry Rehman, Farooq Hamid Naek, Mohsin Aziz, Faisal Saleem Rehman, Zeeshan Khanzada, Syed Faisal Ali Subzwari, Senator Talha Mahmood, and Senator Dilawar Khan.

Senior officials from the Ministry of Economic Affairs, Customs Authorities, the FBR, and other attached departments were also in attendance.

Copyright Business Recorder, 2022