'ST will continue to be charged on supply of power to AJK'

The Federal Board of Revenue (FBR) has categorically conveyed to the Ministry of Water and Power that the sales tax would continue to be charged on supply of electricity to Azad Jammu & Kashmir (AJ&K) unless explicit amendment is made in the tax law. It is learnt that the issue came to light during the last meeting of FBR and Ministry of Water and Power on taxation issues of power sector entities.
On the other hand, Ministry of Water and Power is expected to refer the matter to the Economic Co-ordination Committee (ECC) or Federal Cabinet for exemption from sales tax on supply of electricity to AJ&K.
According to power distribution companies, the President on September 26, 2002 decided that electricity generated and supplied to AJ&K will be exempted from levy of sales tax. The FBR contended that in the absence of any formal orders/ notification/amendment in respect of the aforesaid decision, sales tax will continue to be charged as per law. The field formations of FBR made out cases against non-levy of sales tax on supply of electricity to AJ&K. The appellate tribunal Inland Revenue (ATIR) Islamabad accepted the appeal of power distribution companies (DISCOs) regarding non-levy of sales tax which was subsequently set aside by the Islamabad High Court. Unless amendment is made in the law, sale tax will be charged as per law. However, the ministry may refer the matter to ECC/Federal Cabinet for an appropriate decision on the basis of cited agreement.
Due to amendments in section 113 of the Income Tax Ordinance, 2001, minimum tax is now charged even in the gross loss cases. The ministry suggested for review of the amendments. The FBR contended that the amendment was made through legislation, hence only the Parliament can undo it. The FBR categorically communicated that law on this account will take its course, the sources added. The meeting also discussed adjustment of Input Tax relating to Transmission and Distribution Losses. On this issue the distribution companies are of the view that losses occur in normal course of business for many reasons and the same are also approved by NEPRA, therefore, input tax adjustment should not be disallowed for this reason. The FBR did not agree to this point of view. As there was disagreement on interpretation and scheme of taxation, it was decided that the DISCOs may pursue the matter with relevant appellate fora.