ISLAMABAD: As the government struggles to introduce new taxes, more than Rs20 billion proceeds of General Sales Tax are held up with power distribution companies across the country because of a rift within the taxation machinery.
Sources in the Federal Board of Revenue told Dawn on Friday that a well-coordinated effort was under way to forestall a detailed audit and investigation into the matter because beneficiaries had taken the matter to the court on the basis of weak interpretations by tax authorities.
The sources said that a group of officials who had unearthed tax liabilities against power distribution companies and were pursuing a detailed audit of the subject for actual assessment of the held-up amount might soon be sidelined.
Under a special procedure for collection of sales tax on steel products, the previous government had decided to collect Rs6 as General Sales Tax on each unit of electricity consumed by steel rolling mills which produce products like iron bars and beams.
The distribution companies were required to collect the tax from the mills on behalf of FBR and deposit it in the treasury under a specialised input and output adjustment procedure, but most of the power companies did not pay the tax in full and utilised it by treating such collections as input adjustment.
A team of tax officials in Karachi built up a case of Rs750 million against Karachi Electric Supply Company for the period starting from financial year 2007-08, arguing that KESC had wrongly adjusted the amount in its accounts and asked the power utility to deposit the amount in the government treasury.
The KESC management contested the assessment and requested top officials of FBR to withdraw the assessment. Although the relevant authorities in Islamabad did not agree to KESC’s arguments, but held that the regional offices in Karachi should not have issued notices to the company for clearing the tax liability. Therefore, the FBR headquarters decided to set aside the liability for the time being and remanded the case for a re-hearing.
However, letters issued to the KESC set aside the assessment but did not mention orders regarding re-hearing.
The regional tax authorities contested the order. As a result, the FBR headquarters issued a corrigendum asking for a re-hearing of the assessment.
In the meantime, the KESC took the matter to court on the basis of earlier partial orders of FBR and succeeded in obtaining a stay order from the Sindh High Court on the grounds that tax authorities were confused on the subject.
Similar assessments were made by other regional tax authorities in the matter of distribution companies of Wapda and the recovery of liabilities remained suspended because of a debate over KESC’s payables. Interestingly, the Gujranwala Electric Supply Company which was not aware of the legal and procedural debate kept on paying the GST collected under the special procedure from steel re-rolling mills.
The total amount payable by the distribution companies of Wapda, informed sources said, stood at more than Rs20 billion, but in the absence of a detailed audit and investigation, the amount stood held up.
The sources said that some FBR authorities were resisting a number of requests by Member Audit
of FBR to go through the entire record on the subject and conclude the case.