FBR Meets Provincial Revenue Bodies to Resolve Sales Tax Issues Under Cross-Input Tax Adjustment

The Federal Board of Revenue (FBR) and provincial revenue authorities and boards have held an important meeting at the FBR Headquarters to resolve the issue of cross-input tax adjustment (CITA) between the federation and the provinces.

Highly placed officials have told Propakistani that the senior officials of the Sindh Revenue Board (SRB), Punjab Revenue Authority (PRA) and other revenue authorities of the Khyber Pakhtunkhwa and Balochistan participated in the meeting. The Accounting Committee on settlement of CITA issues was held between the senior management of the FBR and the SRB also took place.

The agreed principle for intra-sales tax adjustment between federal and provincial governments is based on the transfer of revenue to the extent of the actual amount of adjustment claimed by taxpayers in the sales tax return filed either with the FBR or SRB/ PRA/ Khyber-Pakhtunkhwa Revenue Authority.

The same would be monitored and verified by the committee consisting of the federal and provincial authorities; hence, there remains no dispute/ concern for excessive or lesser distribution of sales tax collection to any stakeholder; therefore, the past agreement can also be termed fair and equitable.

The Ministry of Finance has already returned the amount of Rs. 31.9 billion to the SRB on account of cross-input tax adjustment (CITA) for the past years, which was wrongly deducted by the FBR. In 2020, the PRA obtained an amount of Rs. 16.586 billion from the FBR on account of CITA for the years, 2012-13 to 2018-19. The Khyber-Pakhtunkhwa Revenue Authority had also received a similar transfer worth Rs. 1.4 billion.

The FBR had on its own determined a net amount of Rs. 31.978 billion payable by the SRB by rejecting the latter’s valid claim of Rs. 42.5 billion against different heads.

Sources said that the meeting was held between the FBR and the senior officials of the provinces at the FBR Headquarters to resolve sales tax-related issues between the federation and the province. In February 2022, the FBR had deducted an amount of Rs. 31.9 billion from the SRB under the head of cross-input tax adjustment.

However, the federal government has now returned the said amount to the Sindh government. During the meeting between the FBR and the SRB, the tax authorities assured the SRB that all issues would be resolved amicably.

The memorandum of understanding (MOU) was signed between the SRB and the FBR on March 13, 2014 in connection with the CITA, which meant that the taxpayers would be allowed to adjust their sales tax return based on the input tax paid in the other’s jurisdiction. This cross-adjustment was supposed to be scrutinized and reconciled, after which the net amount was payable to the administration in whose return a higher quantum of cross-adjustment was made. Another agreement was signed in August 2016 to implement the MOU.

In the meeting held on August 26,  2016, the FBR and the SRB reached an agreement regarding the parameters for cross-adjustment/ verification of the claim of input tax in light of the MOU signed between the two authorities on 13 March 2014.

The understanding was reached after extensive deliberations and meetings between the two revenue authorities. The agreement was intended to facilitate the taxpayers and allow them to adjust the provincial tax paid on services against their liability of sales tax on goods.

A joint committee as laid down in the MOU was also formed and a series of meetings were also held. The MOU also took care of the situation where some amount went disputed and in such a case, it was agreed that the disputed/ un-reconciled amount would be referred to an accounting committee.

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