LAHORE: The Federal Board of Revenue (FBR) and a leading Chartered Accountants (CA) firm are embroiled in a dispute over Rs1.8 million in sales tax deductions related to services provided for automated data processing and audit work.
According to sources the disagreement originates from a contract awarded to the CA firm for the audit of Pakistan Revenue Automation (Private) Limited (PRAL).
Following a delay in payments, the CA firm sought legal intervention through the Islamabad High Court, which led to the court-directed release of Rs60 million on June 27, 2024.
At the core of the conflict is the timing of services rendered and the applicability of tax laws. The CA firm argued that its services were delivered between February 2019 and July 2019, while the relevant sales tax provision under the ICT (Tax on Services) Ordinance, 2001 became effective on July 1, 2019. Therefore, the firm contended that the sales tax deduction was unjustified, as the law was implemented after the completion of services.
The Directorate General IT & DT has requested clarification from the Member (IR-Policy) regarding the legitimacy of the sales tax deduction and its withholding. However, no response has been received so far, which sources attribute to administrative delays within the FBR.
Adding further complexity, sources revealed that while the CA firm objected to the deduction, it had not reported invoices for the services in its monthly sales tax returns since 2019. Neither the relevant tax commissioner nor the field formation had previously acted on the issue. The court has now been informed that the disputed amount is available on the tax portal for adjustment in upcoming returns.
The matter has been exacerbated as other departments reportedly apply higher withholding tax deductions, influenced by scrutiny from the Auditor General of Pakistan (AGP).
Sources indicated that the AGP has repeatedly flagged discrepancies in withholding tax deductions due to the lack of robust monitoring mechanisms by the FBR.
