Bilateral sales tax adjustment

FBR, SRB, PRA likely to sign MoU SOHAIL SARFRAZ ISLAMABAD: A Memorandum of Understanding (MoU) is expected among the Federal Board of Revenue (FBR), Sindh Revenue Board (SRB) and Punjab Revenue Authority (PRA) on the proposed mechanism of bilateral sales tax adjustment between federation and each of the provinces. Sources told Business Recorder here on Sunday that there are positive developments towards signing of the MoU between the federal tax authorities and provincial revenue board/authorities. The SRB has given positive response to the FBR, which would lead to signing of the proposed MoU to resolve the issue of input tax adjustment. It is expected that a formal MoU will be inked between the FBR and provinces during coming days, official added. The FBR had shared draft MoU with SRB/PRA for comments. Federal tax authorities are optimistic that the provincial revenue authorities/boards would agree with the draft MoU on the said issue. According to sources, the MoU can only be implemented after mutual consent of all the parties. The comments of the SRB and PRA are very important for the implementation of the MoU. Under the draft agreement, the FBR and provinces would have to agree on the mutual mechanism of cross adjustment of input tax. After every three months, the net adjustment would be worked out on the basis of modalities being finalised under the draft MoU. The federation and the provinces would be able to bilaterally adjust the amount of sales tax on signing of the MoU. Under the proposed bilateral agreement, the FBR will be able to carryout bilateral adjustment of the sales tax between federation and each of the provinces. After every three months, i.e., each quarter of fiscal year, the FBR will estimate as to how much amount is pending with the federation or provinces on account of input tax adjustment. The FBR will reconcile the data with provinces after every three months for the bilateral adjustment of input tax, sources added. In principal, Punjab Revenue Authority (PRA) and Khyber Pakhtunkhawa Revenue Authority (KPRA) have agreed to the proposal of the bilateral input tax adjustment and they have shown their willingness to sign such bilateral agreement to resolve the issues of input tax adjustment. Before 2011 sales tax on services was collected by the FBR. Under the 18th Amendment and 7th NFC Award, provinces were empowered to collect sales tax on services. During the first year the FBR had collected sales tax on services on behalf of the provinces. The Sindh Revenue Board (SRB) was the first provincial revenue board which started collection of sales tax on services in 2011. Later, PRA and KPRA have also started collecting sales tax on services. In Finance Act, 2013 amendment was made to the definition of provincial sales tax under which the FBR has disallowed input tax adjustment against provincial sales tax laws. The provinces claim sales tax adjustment on services and federation claims sales tax adjustment of goods. As a result of cross-adjustment of input tax, there are certain situations where the federation has to give refund on the behalf of provinces whereas provinces will do the same in case of federation.

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