ByKarachi, Pakistan: A dispute has erupted between the Federal Board of Revenue (FBR) and a leading Chartered Accountants (CA) firm regarding a Rs. 1.8 million sales tax deduction on services related to automated data processing and audit work. The disagreement centers on the timing of service provision versus the implementation of the relevant tax law.
The CA firm was contracted to audit Pakistan Revenue Automation (Private) Limited. Following payment delays, the firm pursued legal action, ultimately receiving a court-ordered payment of Rs. 60 million on June 27, 2024, from the Islamabad High Court.
However, the FBR deducted Rs. 1.8 million in sales tax from this payment, a move the firm contests. The firm argues that the services were rendered between February 2019 and July 2019, while the relevant tax provision under the ICT (Tax on Services) Ordinance, 2001, came into effect on July 1, 2019 – after the completion of their work. They maintain that the deduction is therefore unjustified.
The Directorate General IT & DT has sought clarification from the member (IR-Policy) within the FBR regarding the legality of the sales tax charges and the subsequent withholding. Sources indicate that no response has been received to date, raising concerns about potential administrative inefficiencies within the FBR.
Further complicating the issue, sources revealed that the CA firm, despite objecting to the deduction, did not include the invoices for the services in their monthly sales tax returns since 2019. Additionally, neither the relevant commissioner nor field formation took any action on the matter. The court has now been informed that the disputed amount has been made available on the tax portal for adjustment in future tax returns.
The situation is further exacerbated by reports of other departments making higher withholding tax deductions, reportedly due to increased scrutiny from the Auditors General of Pakistan (AGP). Sources suggest that the AGP has frequently identified discrepancies in withholding tax amounts due to the FBR’s lack of effective monitoring mechanisms.
The absence of clear guidelines from the FBR, despite repeated requests, has created significant uncertainty for taxpayers. This incident has raised serious questions about the organization’s internal management procedures and highlights broader concerns regarding tax administration in the country. It also underscores the need for improved coordination between withholding agents and tax authorities to avoid such disputes in the future.
