FBR has agreed in principle on certain issues whereas divergence of views remained unresolved with respect to others. The sources said, FBR argues that no exemption under the Sales Tax Act, 1990 is available to Tariff Differential subsidy (TDS) granted by GoP to Discos as a part of socio-economic policy decisions. In the opinion of FBR, Discos are receiving full value for their supplies of electricity in case partial burden of value of supplies of electricity is shared by the GOP in the form of TDS. Therefore, TDS, being part of value of supply received by Discos, is equally chargeable to sales tax.
An example being Discos are charging Rs 12 per unit of electricity from their consumers. Government of Pakistan asks Discos to charge Rs 10 per unit from consumers and obligates itself to pay Rs 2 per unit as TDS. As such Discos are receiving Rs 12 per unit on supply of electricity ie Rs 10 per unit from consumers and Rs 2 per unit from Government of Pakistan as TDS. Therefore, Discos must pay sales tax on the value of supply which is Rs 12 per unit.
It has been observed by the tax authorities that Ministry of Power has relied on judgments of Appellate Tribunal Inland Revenue (ATIR) wherein the issue of subjection of TDS to sales tax has been decided in favour of FBR. The issue has not attained finality as decision of ATIR in case of Mepco has been remanded back by LHC to a larger bench of the ATIR for resolution of conflicting judgments. FBR maintains that similar demand for exemption on subsidy may also be raised by sectors like fertilizers which are also subsidized by the government.
Commenting on disallowance of input tax credit against transmission and line losses, FBR has argued that under the provisions of section 7 of the Sales Tax Act, 1990, a registered person is entitled to deduct input tax for the purpose of taxable supplies made. Since transmission and line losses are not to be included in taxable supplies, therefore, input claimed with respect to electricity lost the way of transmission and line losses is admissible under the provisions of section 7 of the Sales Tax Act, 1990. FBR has further pleaded that tariff of Discos determined by Nepra takes care of transmission and line losses and FBR is already allowing input tax adjustment to the extent of losses determined by Nepra. Since, losses in excess of the limit allowed by Nepra are not included in tariff and thus are not being taxed, the adjustment of input tax against the same is not allowed under section 7&8 of the Sales Tax Act, 1990.
On the issue of payment of GST on collection basis rather than on accrual basis, FBR argues that the entire sales tax regime is based on payment of sales tax on accrual basis. Section 6(2) of the Sales Tax Act, 1990 provides that the tax in respect of taxable supplies made during the tax period shall be paid by the registered person in the next month at the time of filing of returns for that tax period. Therefore, creating an exception would invite similar demands from other utility companies like K-Electric and gas distribution companies etc.
However, FBR has agreed with the proposal that supplies of electricity to AJ&K may be zero-rated on reciprocal basis. However, the agreement reached between the two governments was not provided legal coverage under the Sales Tax Act, 1990. FBR has proposed that the provisions for such zero-rating may be included in the Fifth schedule to the Sales Tax Act, 1990.
As regards supply of electricity to domestic consumers of FATA, FBR has not supported zero-rating of the supplies as Tesco is receiving full value of its supplies from the federal government, arguing that allowing such zero-rating would weaken FBR's stance on the taxability of supplies made from tariff areas of Pakistan to FATA.
FBR has also not supported the proposal of not charging sales tax on capacity purchase price of the electricity supplied by CPPA (G) to Discos. FBR has further submitted that exemption provided to IPPs from taxation of capacity purchase price is in pursuance of sovereign agreements signed with the IPPs by the Government of Pakistan.
Commenting on consolidated sales tax returns by all Discos, FBR maintains that sales tax law defines the 'person' as an individual, an AOP or a company. Since, each Disco is a separately incorporated company each is to be decided as a separate entity or person for sales tax law and has to file a separate return as per sales tax law, adding that allowing all Discos to file a single return would complicate sales tax procedures and also create precedent for other groups of companies to seek similar facility. Moreover, allowing adjustment of refund of one Disco against liability or other amounts to instantaneous refund without processing and scrutiny of refund claims. Further, all Discos are registered in separate RTOs/ LTUs and therefore, post-facto processing and scrutiny of offsetting of refunds and payments would also create complications and difficulties. Therefore, FBR has opposed the proposal of consolidated sales tax return.
The sources said, FBR has also rejected the proposal "extension in period for exclusion of purchase price of electricity through SRO 171(1)2008, saying that dispensation allowing exclusion of purchase price through the said SRO was made available up to tax year 2013. FBR argued that demand is contrary to the provisions of section 113 of the Income Tax Ordinance, 2001. FBR, however, has agreed that the rate of tax under section 113 may be reduced to 0.5 per cent in case of Discos through necessary amendment in part-III of Second Schedule to the Income Tax Ordinance, 2001.
Copyright Business Recorder, 2017