News Paper: Business Recorder
ISLAMABAD (July 23 2010): The Federal Board of Revenue has to resolve a major controversy on collection of taxes on telecommunication, banking and insurance services as Punjab and Khyber-Pakhtoonkhwah have imposed 17 percent sales tax on these services whereas Federal Excise Act continues to empower the FBR to collect Federal Excise Duty on the said services at the prescribed rates.
It is learnt here on Thursday that the Punjab and KP have imposed 17 percent sales tax on telecom services including services provided by mobile phone companies. Other services liable to 17 percent sales tax included banking and insurance services. These taxes have been imposed through their respective Finance Acts passed recently for 2010-11. The responsibility to recover/collect this levy has been passed on to FBR.
These provinces have authorised the FBR to collect the levy under their respective laws. However, the FBR has not issued any instructions so far for charging/collection of sales tax on these services despite the fact that the said services have been notified by the provinces through their respective laws. The Federal Excise Act had imposed 19 percent FED on telecom services and 17 percent on banking and insurance services.
The present status of law could not be termed as double taxation as both the Federation and the province (Punjab and KP) are well within there constitutional domain to levy and collect the respective taxes on the telecommunication, banking and insurance services. However, if the provinces start collecting sales tax on these services, it would be heavy taxation on telecom, banking and insurance services; which will in return make these services unaffordable for already overburdened common man.
So far, the said provinces have not started proper collection of the levy as the FBR is already charging FED on these services under the Federal Excise Act. In case Punjab/KP started collecting 17 percent sales tax on telecom services, the accumulated effect of taxes would come to 36 percent in case of telecom services after incorporating 19 percent FED under the Federal Excise Act. If 17 percent sales tax was collected on banking and insurance services, the total impact of taxes would come to 33 percent. The 33 percent taxes would include 16 percent FED on banking and insurance companies.
When contacted, senior tax experts said that the Federal government had decided to transfer the levy and collection services to the provinces under reformed GST/VAT for which the provincial levy was made effective under the provincial Finance Acts for the year 2010, however, it is not understandable as to why the FED has not been abolished.
Under the present circumstances if either one is not removed it would clearly mean that the non-collection will result into default on the part of the telecom; banking and insurance companies. In short this levy as it stands today seems to be validly enforceable. It was stated that in order to resolve the issue some sort of a notification should have to be passed to hold the levy and collection of one by the FBR; in short either to abolish sales tax on services or exempt FED under the Federal Excise Act. In case this is not done the subscribers of telecom services would have to pay 36 percent sales tax/FED and services of banking and insurance would be subjected to 33 percent FED/Sales tax.
The tax/legal experts are also of the view that the levy will sustained if challenged before high courts for reason that the provinces have the mandate under the constitution to levy sales tax on services; whereas the Federal government has the authority to levy FED on services. The two levies may be harsh and termed as heavy taxation of one industry by both provinces and Federation but would by no means be ultra vires to the constitution.
It has also been learnt by this scribe that the telecom companies and the Pakistan Banks Association have taken up the matter seriously and have decided to approach the relevant provincial and federal authorities for the effective resolution of this anomaly so as to save themselves from the default. It has been further learnt that FBR has also taken cognisance of the issue and are looking for a way to have the same resolved without disturbing the current collection and the affordability of these services for the end consumer; who has to bear the burnt
-www.brecorder.com
It is learnt here on Thursday that the Punjab and KP have imposed 17 percent sales tax on telecom services including services provided by mobile phone companies. Other services liable to 17 percent sales tax included banking and insurance services. These taxes have been imposed through their respective Finance Acts passed recently for 2010-11. The responsibility to recover/collect this levy has been passed on to FBR.
These provinces have authorised the FBR to collect the levy under their respective laws. However, the FBR has not issued any instructions so far for charging/collection of sales tax on these services despite the fact that the said services have been notified by the provinces through their respective laws. The Federal Excise Act had imposed 19 percent FED on telecom services and 17 percent on banking and insurance services.
The present status of law could not be termed as double taxation as both the Federation and the province (Punjab and KP) are well within there constitutional domain to levy and collect the respective taxes on the telecommunication, banking and insurance services. However, if the provinces start collecting sales tax on these services, it would be heavy taxation on telecom, banking and insurance services; which will in return make these services unaffordable for already overburdened common man.
So far, the said provinces have not started proper collection of the levy as the FBR is already charging FED on these services under the Federal Excise Act. In case Punjab/KP started collecting 17 percent sales tax on telecom services, the accumulated effect of taxes would come to 36 percent in case of telecom services after incorporating 19 percent FED under the Federal Excise Act. If 17 percent sales tax was collected on banking and insurance services, the total impact of taxes would come to 33 percent. The 33 percent taxes would include 16 percent FED on banking and insurance companies.
When contacted, senior tax experts said that the Federal government had decided to transfer the levy and collection services to the provinces under reformed GST/VAT for which the provincial levy was made effective under the provincial Finance Acts for the year 2010, however, it is not understandable as to why the FED has not been abolished.
Under the present circumstances if either one is not removed it would clearly mean that the non-collection will result into default on the part of the telecom; banking and insurance companies. In short this levy as it stands today seems to be validly enforceable. It was stated that in order to resolve the issue some sort of a notification should have to be passed to hold the levy and collection of one by the FBR; in short either to abolish sales tax on services or exempt FED under the Federal Excise Act. In case this is not done the subscribers of telecom services would have to pay 36 percent sales tax/FED and services of banking and insurance would be subjected to 33 percent FED/Sales tax.
The tax/legal experts are also of the view that the levy will sustained if challenged before high courts for reason that the provinces have the mandate under the constitution to levy sales tax on services; whereas the Federal government has the authority to levy FED on services. The two levies may be harsh and termed as heavy taxation of one industry by both provinces and Federation but would by no means be ultra vires to the constitution.
It has also been learnt by this scribe that the telecom companies and the Pakistan Banks Association have taken up the matter seriously and have decided to approach the relevant provincial and federal authorities for the effective resolution of this anomaly so as to save themselves from the default. It has been further learnt that FBR has also taken cognisance of the issue and are looking for a way to have the same resolved without disturbing the current collection and the affordability of these services for the end consumer; who has to bear the burnt
-www.brecorder.com
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