Sindh agrees to resume federal tax collection on Rs5bln deal

KARACHI: Sindh government has agreed to resume collection and depositing of withholding tax on motor vehicles on behalf of the Federal Board of Revenue (FBR) after having been pledged of Rs5.4 billion controversially deducted from the provincial kitty by the centre, people familiar with the matter said on Monday.

Sources said the FBR finally convinced Sindh government into resumption of withholding tax collection on registration/transfer of motor vehicles. The FBR and Sindh government agreed on a deal under which the federal revenue authority would return a sum that was controversially deducted from the Sindh province’s treasury, said the sources.

“An amount of Rs5.4 billion was recovered early this year from the account of the province through federal adjuster,” a senior FBR official confided with The News. “This was the reason that the Sindh government stopped collection of withholding tax on behalf of the FBR from registration and transfer of motor vehicles.”

The official said last week director general withholding tax visited Karachi to finalise the mode for returning the amount to Sindh government. “The FBR will return a part payment out of Rs5.4 billion and in this regard a summary has been sent to the finance division,” said the official.

The official further the provincial government assured that once the payment is transferred to the provincial kitty, the halted process of tax collection would restart. The excise and taxation department of Sindh stopped the withholding tax referring to a Sindh cabinet decision. Sindh discontinued the collection of withholding tax under a law (section 231B and 234 on) behalf of the FBR with effect from July 1. This decision was taken in the light of the decision of the Sindh cabinet in February.

The Sindh excise department has not been collecting the withholding tax for the last two months. The non-collection of withholding tax has caused revenue loss of around Rs600-700 million to the FBR, according to the sources.

Earlier this month, a meeting was held between the FBR Chairman Javaid Ghani and Chief Minister Sindh Murad Ali Shah on the issue, but to no avail. The provincial government made it clear that it would not resume withholding tax collection on motor vehicles till the federal revenue body returns the amount that was taken out from the account of the provincial government.

The FBR official said the provincial government agreed that it’d resume the withholding tax collection and recover the amount not deducted during the months of July and August. In July, the FBR also sent a letter to the Sindh government, asserting major demands of the provincial government has been incorporated into the law through Finance Act 2020.

Therefore, the provincial government should resume the collection. The FBR last month constituted a committee to iron out differences with Sindh tax authority over revenue collection from motor vehicles in the province. The committee comprises member taxpayers audit, chief commissioner, Regional Tax Office-II, Karachi and secretary of Excise and Taxation Sindh to resolve the withholding tax collection issue.

Under the latest agreement, the withholding tax collection/deduction would not be applied on registration/transfer on rickshaw, motorcycle-rickshaw and any other motor vehicle having engine capacity up to 200cc.

The FBR said the explanation

would be applied retrospectively and all taxes collected by the FBR on account of non-deduction of tax from motor cycle, rickshaw would be settled by September.