FBR Illegally Exempts Diplomatic Imports from Sales Tax

The Federal Board of Revenue (FBR) has overstepped its legal domain by unilaterally restoring sales tax exemption on imports by diplomatic missions and privileged persons without referring to the parliament or issuing a Presidential Ordinance.

According to an order issued by the Federal Tax Ombudsman (FTO), the FBR has unilaterally assumed the Review Jurisdiction of an act of parliament. While doing so, FBR has overstepped its legal domain, and its decision is an act of maladministration being contrary to law in terms of section 2(3)(i)(a) of FTO Ordinance, 2000.

The FTO has directed the FBR to avoid any such recurrence in the future and also identify the responsible officers, who created an embarrassing position for the Ministry of Foreign Affairs.

Details of the case revealed that the Own Motion investigation is based on Federal Tax Ombudsman jurisdiction/powers under section 9(1) of the Federal Tax Ombudsman Ordinance, 2000, taking cognizance of FBR’s U.O. No. 4/I-STB/2022, dated 4 February 2022, whereby exemption on imports by diplomatic missions and privileged persons has been restored by FBR without any legal authority.

Admittedly, the Ministry of Foreign Affairs has raised certain reservations that the said omission could trigger an adverse reaction from other foreign states and international organizations.

The Ministry of Foreign Affairs (MoFA) requested an immediate remedial measure enforceable through some SRO. The PCT Heading 9901, 9902, 9903, and 9906 of Chapter 99 of the First Schedule to the Customs Act, 1969, were restored as an interim arrangement after getting approval from the Minister of Finance and Revenue. The FBR’s U.O. was issued, whereby exemption on imports by diplomatic missions and privileged persons was restored with immediate effect.

Subsequently, on 24 February 2022, Chairman FBR moved a summary for the Federal Cabinet for grant of exemption ( withdrawn through Finance Supplementary Act 2022) from Sales Tax effective from 15 January 2022 in the exercise of powers vested in the Federal Government under section 13(2)(a) of the Sales Tax Act, 1990.

The MOFA had raised its alarm on 31 January 2022, and 1 February 2022, yet the summary for the Federal cabinet was moved on 24 February 2022, and that too only after the intervention of this office dated 16 February 2022. Delay and ineptitude in terms of section 2(3)(ii) of the FTO Ordinance, 2000, are visible, according to the FTO order.

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