FBR directed to examine sales tax deduction on computerized arms licenses

FBR directed to examine sales tax deduction on computerized arms licenses

ISLAMABAD: Federal Board of Revenue (FBR) has been directed to examine chargeability of sales tax on computerized arms license in the form of cards.

Federal Tax Ombudsman (FTO) in a complaint recommended the FBR to examine chargeability or otherwise of sales tax under the Sales Tax Act, 1990 on Computerized Arms Licenses in the form of cards, being supplied by NADRA, Islamabad to the Federal Government, and Provincial Governments on the analogy of Chip-based Vehicle Registration Cards.

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The issue was highlighted by a complainant stating that National Database Regulatory Authority (NADRA) was not charging sales tax on the supply of goods in the form of: machine readable passports; vehicle registration cards; and computerized licenses.

The complainant, who is a registered informer to the FBR, stated that he had given written information to various tax officers, including the FBR chairman, but none of them had given any satisfactory response.

A departmental representative from Large Taxpayers Office (LTO) Islamabad submitted a comprehensive reply/comments on the complaint dated January 23, 2023.

Regarding Machine readable Passports, the DR explained that NADRA issues only a chip and through system, allows the Passport and Immigration Department to down load print of the copy of Passport Book.

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The Complainant did not agree and emphasized that supply of these Passport Books should be treated as supply of goods as per Sales Tax Law hence chargeable to sales tax.

It was decided to call a representative of NADRA in next hearing for clarity of facts. During hearing held on February 10, 2023, Shehzad Akhtar while representing NADRA stated that they are providing ‘Services’ to Ministry of Interior for printing and supplying Cards/Passport Books.

The Complainant reacted that the supply of cards is in fact “supply of goods as ‘card’ falls within the definition of “goods” under the Sales Tax Act Laws.

The NADRA representative suggested to seek legal opinion from Ministry of Law & Justice, Islamabad before deciding the matter/complaint. He also requested to allow him some time at least one week to submit comments in the light of discussion held during hearing. His request was allowed. He sought additional time on telephone which was also allowed. Finally, a comprehensive reply dated February 23, 2023 was received on the same date.

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During hearing held on February 10, 2023, the Complainant did not press on chargeability/non collection of sales tax on the supply of Machine readable Passports as goods in the light of definition given in clause (12) of section 2 of the Sales Tax Act, 1990.

The comments/report received from LTO, Islamabad dated January 31, 2023 reveal that NADRA is paying sales tax at 5 per cent of value on the supply of Machine Readable Passports in the light of S.No.11 of the Table-I of the schedule to Islamabad Capital Territory (Tax on Services) Ordinance, 2001. According to details, as provided by the LTO, Islamabad vide their letter referred above, NADRA is charging and depositing sales tax at 17 per cent of value on cards being supplied to Excise and Taxation Department, Islamabad.

Only in the months of October, 2022 and November, 2022, they have paid Rs.5,504,532/- and Rs.4,555,9321- respectively as sales tax.

Insofar as charging of sales tax on supply of Computerized Arms License (in the form of cards) to the Federal Government and Provincial Governments, is considered, the LTO, Islamabad has stated that “Under section 3 (2B) of the Islamabad Capital Territory (Tax on Services) Ordinance, 2001, the tax levied under sub-section (l) is not applicable to regulatory and licensing services rendered or provided by an organization established under a Federal Statute. NADRA has been established under National Database and Registration Ordinance, 2000 which is a Federal Statute.

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Therefore, sales tax on arms licensing services of NADRA is not applicable”. The legal position is that clause (b) of sub-section (2) section 9 of the FTO Ordinance, 2001 bars jurisdiction of the FTO, inter alia, in matter of ‘determination of liability’ of tax on duty.

In his findings, the FTO observed that NADRA is paying sales tax on the supply of Machine Readable Passports to Directorate General of Immigration and Passport, Islamabad as supply of services at 5 per cent of value. They are regularly filing sales tax returns as informed by LTO, Islamabad;

NADRA is charging and paying sales tax at 17 per cent of value (as goods) of chip-based Vehicle Registration Cards; and as per contention of LTO, Islamabad sales tax is not chargeable on the supply of Computerized Arms Licenses by NADRA in terms of ICT (Tax on Services) 2001. However, they are silent about chargeability of sales tax (on goods) under Sales Tax Act 1990.