Longstanding dispute: Centre set to withdraw excise duty on financial services

Sindh terms the understanding, agreed upon last year, a ‘dead horse’.

ISLAMABAD:

The federal government on Wednesday assured Sindh that it would withdraw federal excise duty on financial services in the next 48 hours after the provincial government calls a written understanding, agreed upon by both sides a year ago on collection of tax on services, a ‘dead horse’.

The commitment was given in a meeting between the Federal Board of Revenue (FBR) and Sindh Revenue Board convened to resolve the longstanding dispute over tax collection right on all services, sources privy to discussions said.

Both the revenue collection authorities have developed differences over the right to collect taxes on services in the light of an interim “record note on implementation of GST on Services”, signed in September last year. The FBR is still insisting upon honouring the note – the end product of September 27-28 meetings between centre and provinces – while the provincial government has dubbed the note a “used tissue paper and dead horse”.

A senior member of the FBR said that Sindh was going “beyond its mandate by issuing notices to banks and insurance companies to pay taxes”. He said until a new arrangement was in place, the provincial government should honour the previous memorandum.

An official of the provincial revenue department told The Express Tribune on condition of anonymity that the “Record Note was detached from the new legal reality – that is a comprehensive provincial collection law”.

To find a middle ground, the provinces and the centre signed the note last year, dividing the services into three groups. Both the sides agreed on first two groups but have developed serious differences over the third. The third group includes those services that constitute a significant portion of tax refunds and involve intra-provincial transactions. These financial services include banking, insurance, stock market, advertising, construction and franchises.

The federal government is charging tax on these services in federal excise duty mode which Sindh has termed illegal and unconstitutional. The FBR assured Sindh that it would issue notification on August 19 to withdraw FED.

The Sindh official said the FBR’s attitude of trying to “dictate things” was not acceptable to the province. He said although the ‘record note’ expired in June, the Sindh government was still willing to sign a new memorandum in “spirit of the old one”.

For the current fiscal year the Sindh government has targeted to collect Rs 25 billion from services sector. So far it has collected Rs 660 million and claims that another Rs 300 million is in pipeline. The other three provinces have surrendered their collection right in favour of the FBR. The FBR deducts one per cent of the collection as services charges.



Published in The Express Tribune, August 18^th, 2011.