Karachi, May 13, 2024 – The Overseas Investors Chamber of Commerce and Industry (OICCI) has urged the development of policy guidelines for sales tax laws on distributors, emphasizing the need for collaboration and coordination among federal and provincial tax regulators.
In its proposals submitted for the upcoming budget 2024-25 to the Federal Board of Revenue (FBR), the OICCI emphasized the importance of consensus-based policy development for taxpayers regarding the application of sales tax laws on distribution and subsequent supply arrangements.
Highlighting the significance of consistency and harmonization in tax regulations across the country, the OICCI stressed the necessity to engage with all provinces, including the FBR, to ensure uniformity in tax policies.
The OICCI’s call for policy development comes in the wake of a recent decision by the Supreme Court of Pakistan (SCP) dated January 26, 2024, regarding the taxation of distributors. The SCP upheld the earlier decision of the Sindh High Court (SHC) dated September 6, 2021, which subjected distributors to tax under the heading of ‘Supply Chain Management or Distribution (including delivery) Services’ [9845.0000] of the Sindh Sales Tax on Services Act, 2011, on their distribution margin, despite already paying sales tax to the federal government on the supply of goods.
While the SCP’s decision was specific to the case at hand, concerns have been raised regarding its broader implications for the distribution sector. Tax authorities of the Sindh Revenue Board (SRB) have reportedly begun issuing notices to distributors, applying the effects of the SCP decision across the entire sector.
Failure to address this issue effectively with consensus among provinces and the federation could result in increased costs for businesses in the documented sector. Furthermore, it could exacerbate the complexities of the existing fragmented Value Added Tax (VAT) system applicable in the country.
The OICCI’s advocacy for the development of sales tax laws for distributors underscores the importance of creating a conducive environment for business operations and ensuring clarity and predictability in taxation policies. As discussions continue, stakeholders are hopeful for constructive dialogue and measures aimed at promoting a more business-friendly regulatory framework.