Official sources told Business Recorder here on Monday that the hearing of the case pertaining to recovery of taxes has been completed and both the FBR and the petroleum companies would further take any action as per decision of the larger bench of the Inland Revenue Appellate Tribunal Islamabad.
The tax consultant of the petroleum company argued that the parent guarantee submitted by the OP to the Ministry of Petroleum covers liability of taxes. There is no need to get bank guarantee from the relevant party. Once the decision of the Inland Revenue Appellate Tribunal Islamabad is announced, the exact position would be clear on the issue of recovery of taxes.
On the other hand, FBR officials opined that the said petroleum company should submit bank guarantee, or pay the disputed amount, or follow the decision of the Inland Revenue Appellate Tribunal Islamabad in the case under question. If the Inland Revenue Appellate Tribunal Islamabad gives decision in favour of the petroleum companies including OP, the FBR will strictly follow the orders.
Officials said that the petroleum companies have won the case relating to the recovery of taxes from Karachi Tribunal. On the other hand, the FBR had won the case at the level of the Commissioner Appeal as well as Islamabad Tribunal. A larger bench of Inland Revenue Appellate Tribunal Islamabad was constituted to decide the matter of tax recovery from the petroleum companies.
Sharing details of the issues with the petroleum sector, officials further stated that the recovery of taxes is not restricted to only one petroleum company. The whole issue has to be seen within the context of the petroleum sector and issues under litigation. The FBR had three major issues with the exploration and production companies (E&P) including de-commissioning cost, depletion allowance and tax rates.
The issue of de-commissioning cost between the tax department and the petroleum companies has been resolved. Through an SRO.357(I)/2011, the Board had issued the 'decommissioning certificate' to be submitted by chartered accountants or cost accountants for the E&P companies to allow de-commissioning cost to such companies to facilitate investment in petroleum sector.
Under the Finance Act 2010, a new rule 2(4A) was introduced in Part I of Fifth Schedule to the Income Tax Ordinance, 2001, relating to the rules for computation of profits and gains for the petroleum exploration and production companies. The second issue relates to the depletion allowance which has also yet to be settled between the FBR and the petroleum companies. Official sources added that the third key issue is recovery of taxes from the petroleum companies by the FBR.
The tax rates should be applied in accordance with the provisions of Petroleum Concession Agreement. According to estimates, the petroleum companies have to pay the disputed taxes to the tune of nearly Rs 14 billion, accumulated since 2003. The FBR will further proceed against the companies following orders of the Inland Revenue Appellate Tribunal Islamabad, if necessary.