LAHORE: Punjab Revenue Authority Chairman Javed Ahmed has said that “We have received a letter from the FBR for naming our representatives on the proposed joint committee to discuss the issue (and determine who – the federal government or the province – actually has a legal claim on sales tax collection on toll manufacturing)”.
The Federal Board of Revenue (FBR) and the Punjab Revenue Authority (PRA) have finally agreed to constitute a joint committee for settling their longstanding dispute over who should collect sales tax from toll manufacturers who add value to product(s) for others.
The dispute arises out of different interpretation or definition of toll manufacturing employed by the FBR and PRA to suit their interests. For example, the FBR considers toll manufacturing a ‘goods producing activity’ and collects sales tax (on goods) from the manufacturers under the federal Sales Tax Act, 1990 that deals with tax on sale, import, export, production, manufacturing and consumption of goods.
The PRA, on the other hand, classifies the same activity as a ‘service’ and has issued show-cause notices to scores of factory owners for not “withholding and paying 16 per cent provincial sales tax on toll manufacturing” in spite of a clarification by the FBR in January 2016 that it was not a service.
Manufacturers say the PRA has long been trying to extend its jurisdiction on areas such as toll manufacturing that are being treated by the FBR as its territory for charging federal sales tax from the industry.
The dispute between the FBR and the PRA on toll manufacturing isn’t the only issue adding to the cost of doing business for manufacturers, especially exporters, in Punjab. The PRA is also claiming from them tax on the ‘foreign commission’ exporters pay outside the country and services like insurance they buy from a company based outside Punjab.