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Cross-adjustment of ST: Govt yet to implement LHC verdict

Cross-adjustment of ST: Govt yet to implement LHC verdict

LAHORE: The Federal government has failed to comply with a verdict pronounced by the Lahore High Court (LHC) against the interpretation of section 2 (22A) of Sales Tax Act 1990 by the FBR and the Ministry of Finance, Economic Affairs, Statistics and Revenue failed to include Khyber Pakhtunkhwa (KP) in its notification issued on March 27, through which the government empowered only Sindh, Punjab, Balochistan and Islamabad on tax input adjustment issue.

As per details, LHC Judge Ayesha A Malik in a judgment termed the interpretation of Section 2 (22A) of the STA contrary to the mandate of the law. Petitions were allowed and the respondents were directed to accept the sales tax returns of the petitioners electronically or manually by allowing adjustments claimed by the petitioners of provincial sales tax on services under provincial laws.

Soon after the LHC verdict, experts cast doubts about the legal status of the memoranda of understandings (MoUs) signed between the Federal Board of Revenue (FBR), Sindh Revenue Board (SRB) and Punjab Revenue Authority (PRA) on March 13. The federal government, however, through its notification gave a message that the MoUs are still valid.

In the notification issued under clause (22A) of section 2 of the Sales Tax Act 1990, the federal government declared that the tax levied under the following laws to be provincial sales tax for the purpose of input tax under the act namely: The Balochistan Sales Tax Ordinance, 2000, Islamabad Capital Territory (tax on services) Ordinance No I of 2000, Sindh Sales Tax on Services Act 2011 and Punjab Sales Tax on Services Act 2012.

The notification shall take effect and shall be deemed to have been in effect from July 1, 2013. However, it lacked any mention of the Khyber Pakhtunkhwa province. It is to be recalled that the notification ensued the signing MoUs signed between the FBR, PRA and SRB.