Islamabad: The federal and Sindh governments are flexing their muscles as the federation seems to be backtracking on its pledge to repeal the Federal Excise Duty (FED) Act of 2005, a piece of legislation that Sindh believes is unconstitutional after the 18th Amendment to the constitution.
Tension between the federal and Sindh governments is brewing as the June 2014 deadline for repealing the FED Act approaches, according to sources in the Ministry of Finance and Sindh government.
Sindh is now considering raising the issue at the Council of Common Interests (CCI) – the highest political forum that deals with issues which have implications for both the federation and the federating units. The CCI is headed by Prime Minister Nawaz Sharif.
The provinces’ right to collect sales tax on services had been established in the seventh National Finance Commission (NFC) Award, which was later given legal cover through the 18th Amendment. The federal government has been collecting sales tax on services in the form of FED. After the 18th
In 2010, when provinces did not have their own laws, the federal government had generated Rs47 billion from the telecom sector through FED – a figure that nosedived to Rs16 billion in the last fiscal year after the provinces started collecting taxes.
The FED Act was triggering the issue of double taxation as the provincial government had introduced its own sales tax on services law, said Tashfeen Niaz, Chairman of Sindh Revenue Board.
He said the Act was also creating ambiguity about jurisdiction and its continuous implementation was against the spirit of the seventh NFC Award and the 18th Amendment.
Collection of FED on telecom services was under discussion, confirmed Rana Assad Amin, Adviser to the Ministry of Finance and the ministry’s official spokesman.
Instead of repealing the FED Act, the federal government was asking the provinces to scrap their laws on sales tax on services, the sources said.
Other two options that the federation has placed on table are that the provincial governments should authorise the Federal Board of Revenue (FBR) to collect taxes on their behalf or the provinces can collect tax on telecom services but should pay 43% of that to the federation.