Experts question sales tax rate increase without Parliament approval

Experts question sales tax rate increase without Parliament approval

KARACHI: Federal Board of Revenue (FBR) has increased the sales tax rate to 18 per cent from 17 per cent through a notification issued on February 14, 2023, which has to be approved by the parliament.

According to a commentary issued by PwC A F Ferguson Chartered Accountants, the standard rate of sales tax has been increased from 17 per cent to 18 per cent through SRO 179(I)/2023 dated February 14, 2023.

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The amendment through SRO 179 is not applicable on goods subject to sales tax at retail price as specified in the Third Schedule to the Sales Tax Act, 1990.

The SRO is dated February 14, 2023, in view of which it seems that enhanced rate is applicable from February 14, 2023. However, in view of the fact that the SRO was made public on February 15, 2023, keeping in view the principles laid down by the Supreme Court of Pakistan in its judgement reported as 2022 PTD 232.

“The applicability of SRO from February 14, 2023 can be questioned,” according to the chartered accountancy firm. Furthermore, the legitimacy of increase of rate through SRO can also be questioned in view of various judgments which have ruled that power to levy tax remains with the Parliament.

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The Finance (Supplementary) Bill, 2023 besides incorporating the effect of SRO 179, has also proposed to increase sales tax rate from 17 per cent to 18 per cent for the goods specified under the Third Schedule which will be effective from the date on which the Act takes into effect.

It has further been proposed that Federal Government may by notification in the Official Gazette, charge sales tax, on goods specified in Third Schedule, on such higher rates as may be specified. It is expected that a separate notification in this respect will be issued later for certain goods specified in Third Schedule.

On the other hand, tax practitioners have shown concerns over the issuance of the notification by the FBR, stating the increase in tax rate is mandate of the parliament.

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They said that years back the Supreme Court of Pakistan in an order had clarified that the government had not authorized to impose or increase tax rate without approval of the Majlis e Shoora.

The tax practitioners said that the Supreme Court in the case of Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi vs Federation of Pakistan, 2013, cleared the ambiguity that tax would be imposed only through parliamentary approval.

In this case, the apex court ordered: “The Government is not authorized to impose or increase Sales Tax from 16% to 17% 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.”

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Syed Rehan Jafri, President, Karachi Tax Bar Association (KTBA) said that the issuance of SRO by the FBR 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.”

The issuance of SRO has created confusions amongst the tax practitioners because the amendments sought through Finance Supplementary Bill, 2023 are different from the notification.

“The SRO noted 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.

On the other hand the finance bill explained plenty of changes to sales tax rates, he added.