FED not applicable on telecommunication services

KARACHI: In budget 2014/2015, it is proposed that federal excise duty (FED) will not be applicable on telecom sector if provincial sales tax (PST) payable to the tax machinery however, it may lead to disputes until FED is withdrawn generally for all excisable services.
According to budget 2014/2015 brief issued by KPMG Taseer Hadi & Co, Chartered Accountants, Table-II to first schedule of the Finance Bill proposes that FED shall not apply on telecommunication services rendered or provided in a province where any PST is applicable and collectible by the provincial tax regulator.
Currently, PST is applicable on telecom services in three provinces including Sindh, Punjab and Khyber Pukhtunkhwa [KPK], whereas FED applies in Islamabad capital territory and province of Balochistan.
It is highlighted that by virtue of 18th constitutional amendment, the right to levy sales tax on services was vested to the provinces except the transportation and travel services, yet Federal Board of Revenue (FBR) did not withdraw FED on services listed in Table-II to first schedule of the act.
The services inter-alia include advertisements, shipping agents, stockbrokers, franchise, port operators, terminal operators, telecom, banking, insurance and other financial services. It added that the tax authorities in absence of any notification for withdrawal of FED, viewed that FED would apply in addition to PST, and as such made out several cases against banks / financial institutions, in particular.
The proposed insertion may provide leverage to the tax authorities to stretch the interpretation that FED is applicable instead of PST on afore-stated excisable services except telecom services which are now being specifically excluded.
Since telecom services are proposed to be excluded from purview of FED effective July 1, 2014, as such FED would apply on telecom services instead of PST as rendered or provided in respect of the prior periods up till June 30, 2014.

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