"The FBR as a revenue collecting agency has no objection to the proposed demand. However, it may be noted that any imposition of Federal Excise Duty would spike the prices of POL products," tax authorities said. It may be further noted that the federal government has been keeping the prices of POL products in check at the expense of collection of sales tax on POL products which in case of products like kerosene oil, light diesel oil are as low as zero percent, the FBR said.
According to the brief on demands No 6, 16, 17 & 21 pertaining to FBR in the light of modified demands submitted by the government of Khyber Pakhtunkhwa, the provincial government proposed levy of Federal Excise Duty at the rate of Rs 1,000 per barrel on crude oil.
The government of KP submitted the said modified demand: "It is stressed that the issue is not of a "Petroleum Development Levy" but of imposition of Federal Excise Duty on oil, which is requirement of Article 16 1(b) of the Constitution. The duty has to be imposed by the federal government. The issue is long outstanding and needs to be resolved. The constitutional provision is very much clear, and the committee may recommend direct implementation by the federal government within a given timeframe of three months."
Reply of Federal Board of Revenue revealed that the FBR had submitted that the federal legislature under its law making powers has the authority to levy FED under Entry No 44 of Part-I of Fourth Schedule to the Constitution. However, levy of FED would escalate prices of POL products, affecting the consumers directly. The Senate Special Committee in its previous meetings had recommended that the demand might be taken to the Council of Common Interests (CCI).
As already submitted, the Federal Legislature is competent to levy FED on petroleum crude oil. FBR as a revenue collecting agency has no objection to the proposed demand. However, it may be noted that any imposition of Federal Excise Duty would spike the prices of POL products. It may be further noted that the federal government has been keeping the prices of POL products in check at the expense of collection of sales tax on POL products which in case of products like kerosene oil, light diesel oil are as low as 0%.
However, since the Federal Legislature is competent to impose FED on petroleum crude oil through amendment in First Schedule to the Federal Excise Act, 2005, therefore, the demand may please be made to the federal legislature, the FBR added.
On the proposal of facilitation in imposition and collection of provincial taxes such as infrastructure development cess and cross adjustment of sales tax on services, the FBR responded that the government of KP acknowledged that collection of infrastructure cess through WeBOC System has been started since May 2016 and therefore, the matter stands settled.
The government of KP has acknowledged that SRO 814(1)12016, dated 02.09.2016 has been issued providing for adjustment of sales tax paid under Khyber Pakhtunkhwa Finance Act, 2013. Regarding demand for signing of MoU, akin to other provinces, it is submitted that MoU between KPRA and FBR has been signed on 23rd November, 2016.
To a demand of eclipsing provincial taxes through federal taxation like FED or Advance/Withholding Tax, the KP government said that the government of KP has now demanded that imposition of withholding income tax may be restricted to points where the provincial government is not imposing taxes. The transactions/areas have been identified for withdrawal of withholding income tax including property transactions, registration of motor vehicles and marriage/wedding hall/restaurant services.
The FBR responded that the government of KP earlier raised the objection that the provincial government had imposed sales tax on certain services which were also subject to various withholding taxes and had demanded withdrawal of withholding income tax on these services. The FBR had submitted that the federal government has the right to levy income tax under the authority of Entry No 47 of Part-I of Fourth Schedule to the Constitution.
It is submitted that advance tax under section 236C and 236K of the Income Tax Ordinance, 2001 is levied on the sale and purchase of immovable property. Advance income tax at the time of registration of motor vehicles is chargeable under section 234. Similarly, advance income tax U/S 236 is chargeable from the person arranging function in marriage/wedding halls/ restaurants etc.
All the said advance taxes are adjustable against income tax liability of the person engaged in property transactions, purchase of vehicles and holding functions in a tax year and cannot be treated as an infringement upon efforts of provincial authorities to collect their taxes, the FBR added.
The KP government placed a demand of special concession to the industries located in Khyber Pakhtunkhwa on account of war/conflict zone, in customs duty, federal excise duty, sales tax and income tax. The government of KP has now demanded the concessions ie all new industrial estates of KP are recommended to be granted status of special economic zones by federal government to entitle them for exemption from income tax for 10 years.
The Prime Minister had earlier announced a special financial package to rehabilitate post crises economy of Khyber Pakhtunkhwa province, in Malakand Division on 7th January 2010 which included exemption of sales tax excise/customs duty and income tax for most affected areas, moderately affected areas and lesser affected areas. Necessary SROs were issued by the FBR subsequently, on the demand of KP Chamber of Commerce & Industry, the provincial government once again approached the federal government for extension of the facility for another 2 years ie till 30th June 2014 but the federal government did not agree.
The provincial government, therefore, once again recommends exemption for period of 10 years up to 30th June, 2023 in order to facilitate the revival of provincial economy.
As very limited time is left to set up industrial undertakings as per facility under clause 86(a) of Part IV of 2nd Schedule to the Income Tax Ordinance, 2001, for an industry to start commercial productions by June, 2019, the same may be extended up to June, 2023 for KP, the KP government said.
The reply of FBR revealed that regarding exemption from income tax to industries set up in Special Economic Zones, it is submitted that exemption from income tax to the income of a zone enterprise as defined in Special Economic Zones Act, 2012 for a period of 10 years is already available under clause (126E) of Part-I of Second Schedule to the Income Tax Ordinance, 2001. At the same time, it is submitted that FBR is not the competent authority to grant status Special Economic Zones to an industrial estate.
As acknowledged by the government of KP, profits and gains derived by a taxpayer located in areas of KP, FATA, PATA affected by war on terror were granted exemption from income tax for a period of three years starting from tax year 2010 through insertion of clause (126F) of Part-I of the Second Schedule to the Income Tax Ordinance. 2001. Likewise, 50% reduction in sales tax liability was granted to taxpayers of areas affected by war on terror and this concession was remained available from 10.03.2010 to 12.06.2013.
Vide Finance Act 2015, clause (126L) has been added whereby profits and gains derived by a taxpayer, from an industrial undertaking set up between 1st day of July 2015 to 30th day of June 2018, in the whole of KP, have been granted exemption from income tax for a period of five years starting from the day of commencement of their commercial operations.
Therefore, exemption for a period of five years starting from the date of commencement of commercial operations of an industrial undertaking has already been granted, the FBR maintained. Exemption from probe under section 111 of the Income Tax Ordinance, 2001 available to investment within the meanings of clause (86)(a) of Part-IV of Second Schedule to the Income Tax Ordinance, 2001 has already been extended from 30th June 2017 to 30th June 2019 through Finance Act, 2016. Further extension as demanded by the government of KP is not supported at this time, the FBR added.
Copyright Business Recorder, 2017