No Double Taxation: FBR, SRB Settle Sales Tax Dispute

In a breakthrough, the federal government and the Sindh government on Thursday signed a joint statement to settle a long-standing sales tax dispute on toll manufacturing.

The joint statement, submitted by the Federal Board of Revenue (FBR) and the Sindh Revenue Board (SRB) in the Sindh High Court (SHC), paved the way for the resolution of all petitions and reference applications concerning the collection of sales tax on toll manufacturing.

According to the statement, following the directions of the Supreme Court’s order dated June 6, 2024, and the SHC’s order dated May 27, 2025, several meetings were held between FBR and SRB representatives to resolve the matter in light of the relevant statutes — the Sindh Sales Tax on Services Act, 2011 and the Sales Tax Act, 1990.

Key points of the settlement include:

1. Services related to manufacturing and processing for others on a toll basis became liable to Sindh Sales Tax (SST) effective July 1, 2013, when such services were added to the Second Schedule of the 2011 Act through the Sindh Finance Act, 2013.
2. Sub-clause (d) was added to Section 2(33) of the Sales Tax Act, 1990 via the Federal Finance Act, 2015, effective July 1, 2015.
3. For the period July 2015 to June 2022, during which the activity was taxable under both federal and Sindh laws, no double taxation will apply. Payments made to either authority will be treated as final, subject to verification.
4. Following Notification No. SRB-3-4/21/2022 dated June 28, 2022, toll manufacturing services were exempted from SST effective July 1, 2022, removing any issue of double taxation from that date onward.
5. No coercive recovery will be undertaken by either authority until December 31, 2025, allowing taxpayers and litigants time to provide evidence of payments already made.

In light of this consensus, the Sindh High Court has disposed of the pending litigation, marking a significant resolution to the dispute.