ISLAMABAD: The Federal Board of Revenue (FBR), Sindh Revenue Board (SRB) and Punjab Revenue Authority (PRA) are likely to sign a mutual memorandum of understanding (MoU) to develop a mechanism for adjustment of sales tax among the federation and each of the provinces.
According to details, there are positive developments towards signing of the proposed MoU between the federal tax authorities and provincial revenue board/authorities. The SRB has given positive response to the FBR, which would lead to signing of the proposed MoU to resolve the issue of input tax adjustment.
It is expected that the proposed MoU will be signed in the near future as the FBR has shared draft MoU with SRB/PRA for comments. Federal tax authorities are optimistic that the provincial revenue authorities/boards would agree with the draft MoU.
Experts see the SRB and PRA comment on the issue a step forward towards signing of the proposed MoU. Under the draft agreement, the FBR and provinces would have to agree on the mutual mechanism of cross adjustment of input tax. After every three months, the net adjustment would be worked out on the basis of modalities being finalised under the MoU. The federation and the provinces would be able to bilaterally adjust the amount of sales tax on signing of the MoU. Under the proposed bilateral agreement, the FBR will be able to carry out bilateral adjustment of ST as after each quarter of fiscal year, the FBR would estimate as to how much amount is pending with the federation or provinces on account of input tax adjustment. The FBR will reconcile the data with provinces after every three months for the bilateral adjustment of input tax, sources added.
In principal, Punjab Revenue Authority (PRA) and Khyber Pakhtunkhawa Revenue Authority (KPRA) have agreed to the proposal of the bilateral input tax adjustment and they have shown their willingness to sign such bilateral agreement to resolve the issues of input tax adjustment.
It is to be noted that prior to the passage of 18th Amendment, the FBR would collect sales tax on services. Now under the 7th NFC Award, provinces are empowered to collect sales tax on services.
