Dispute between FBR and SRB burdening textile contract manufacturers with double taxation

KARACHI: The dispute over jurisdiction of levy and collection of sales tax in between federal and provincial government has left textile sector toll/contract manufacturers in a fix, as both Federal Board of Revenue (FBR) and Sindh Revenue Board (SRB) are claiming sales tax from the toll manufacturers.

A trader said certain toll manufacturers had approached Sindh High Court agitating against the sales tax demand notices issued by SRB, despite the fact these textile toll manufacturers are registered with FBR and paying the sales tax.[the_ad id=”31605″]Toll manufacturers are in the business of processing raw material and semi-finished products and production of finished products at their properly established manufacturing facilities.

According to Sales Tax Act, 1990, toll manufacturing comes under the ambit and definition of ‘manufacturing’, which empowers FBR to collect sales tax from these manufacturers. However, Sindh Sales Tax on Services Act, 2011 defines toll manufacturing as ‘service’ and thus SRB is also claiming sales tax from the toll manufacturers.

Moreover, FBR vide its clarification addressed to President of Karachi Chamber of Commerce Industry (KCCI) has clearly stated and asserted the right of the federation to levy and collect sales tax under Act of 1990 on processing of goods whether owned or otherwise, toll manufacturing.

Barrister Akhtar Hussain Jabbar representing toll manufacturers said there was an apparent tug of war between the FBR and SRB and officers under both the authorities were demanding tax on toll manufacturing business from the taxpayers.

SBR has approached FBR to resolve the policy issues to avoid double taxation on the taxpayers. But till date the issue has not been resolved and SRB is demanding the tax considering it to be service and liable to provincial sales tax.

“The dispute is between FBR and SRB, which they should resolve among themselves and it, is inappropriate to burden the taxpayers with double taxation,” Barrister Akhtar said adding, “The demand made by SRB comes within the domain of federation thereby such demand is against the basic structure set up through the 18th Amendment to the Constitution.”

Textile toll/contract manufacturers have prayed to the High Court to hold that toll manufacturing is well covered under the ambit of manufacturing and supplies of goods and cannot be treated only services; to hold that recovery demand of Sindh sales tax on account of toll manufacturing is illegal and incorrect.

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