CBR to approach federal adjuster for Rs 131 million: service charges deducted by Sindh government

The Central Board of Revenue (CBR) has decided to approach the federal adjuster to deduct Rs 131 million from Sindh government's federal grant share. The amount had been collected by Sindh government as service charges on collection of motor vehicle tax. This amount was collected during last 10 years on behalf of CBR and had to be remitted 100 percent to the Board, but it was not done.
Sources told Business Recorder on Friday that Karachi Medium Taxpayers Unit (MTU) had given deadline of June 10 for remitting the amount but the provincial government simply ignored the matter. Therefore, CBR had no option other than requesting the federal adjuster for deducting the amount from federal grant released to Sindh government.
In a similar case, the federal adjuster had deducted outstanding amount of the CBR from NWFP government's share. Karachi MTU sent a notice to Sindh Finance Department on June 1, that stated: "During the course of monitoring of Withholding Tax under section 234 of the Ordinance, it transpired that the Motor Registration Authority, Karachi has been deducting five percent service charges on the tax collected under section 234.
"During the period relevant to the Assessment Years 1997-98 to 2002-03 and Tax Years 2004, 2005 and 2006 (latest up to Dec, 2006), the Government of Sindh collected/deducted Income Tax on Motor Vehicle Registration as per Section 50 (6) of the Income Tax Ordinance, 1979 hereinafter referred to as the Repealed Ordinance) which was in operation during the relevant period, and thereafter Section 234 of the Ordinance.
"The practice of deduction of service charges was found to be violative of the provisions of the Ordinance." The notice further mentioned that the ordinance does not provide deduction of service charges by the withholding agents (including Provincial Governments) collecting taxes on behalf of the Federal Government.
The notice stated that the MTU Karachi had repeatedly asked the Motor Registration Authority to remit the amount. Having no response from the authority the unit approached the Additional Secretary (Resources), Finance Department, Government of Sindh for the issue. The request was also not responded.
"In view of proceedings, the provincial secretary finance, being the principal accounting officer, was affirmed as withholding agent for the purpose of proceeding under section 161 of the Ordinance," the notice said.
The secretary had desired to have a copy of similar case of NWFP government-CBR on the issue, which was provided, with request to expedite early payment. However, the Sindh Finance Department despite lapse of a considerable time had made no response.
The Secretary Finance, being the Principal Accounting Officer of the Government of Sindh/withholding agent, had failed to pay the entire amount of tax deducted under section 234 of the Income Tax Ordinance 2001 into government treasury within the prescribed time.
The secretary, therefore, held as a withholding agent-in-default under section 161 of the ordinance and the tax unlawfully retained by him is recoverable from his persons. The amount of default is accordingly charged along with additional tax under section 205 of the Income Tax Ordinance, 2001, the notice said.