KARACHI: The Federal Board of Revenue (FBR) on Wednesday unlawfully imposed new sales tax rates from 17 per cent to 18 per cent through a notification.
The tax practitioners are unanimous that the government in no way changes the tax rate without parliamentary approval.
They said years ago the Supreme Court of Pakistan in an order had clarified that the government had not authorisation to impose or increase tax rate without the approval of the Majlis-e-Shura.
The tax practitioners said in 2013, the Supreme Court in a case of Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi against the Federation of Pakistan, cleared the ambiguity that the tax would be imposed only through parliamentary approval.
In this case, the apex court ordered: “The government is not authorised to impose or increase the sales tax from 16 per cent to 17 per cent on the value of taxable supplies, i.e., by inserting in the Finance Bill (Money Bill) 2013/14 a declaration under Section 3 of the Provisional Collection of Taxes Act, 1931 [hereinafter referred to as ‘the Act, 1931’], as such declaration neither has the status of legislation nor sub-legislation; therefore, it has no force of law.”
Surprisingly, the FBR issued SRO 179(I)/2023 dated February 14, 2023 to enhance the sales tax rate from 17 per cent to 18 per cent.
Syed Rehan Jafri, president of the Karachi Tax Bar Association (KTBA), said that the issuance of SRO to increase the sales tax was unlawful.
“The application of enhanced sales tax rate may be challenged, as the apex court had already issued clear remarks in such cases,” he added.
The issuance of SRO has created confusions among the tax practitioners because the amendments sought through the Finance Supplementary Bill, 2023 are different from the notification.
“The SRO noted that the new tax rate will not be applied on the certain provisions of the Sales Tax Act, 1990,” said Zeeshan Merchant, a senior tax consultant.
Besides, the finance bill explained plenty of changes to the sales tax rates, he added.
Merchant categorically said that the imposition of sales tax through the SRO is illegal. The amendment sought through the bill would be applicable on the day of assent by the president, he added.
Following the issuance of the SRO, the Customs Collectorate stopped the consignments dated February 14, 2023 and marked for reassessment to apply the new rates.
“Hundreds of consignments have been stopped by the Customs Collectorates in Karachi for applying the new sales tax rate of 18 per cent,” said Khurram Ejaz, former president of the Karachi Customs Agents Association.
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