SOHAIL SARFRAZ
ISLAMABAD: Senate Standing Committee on Finance Wednesday rejected Sales Tax (Amendment) Bill 2014, taking a plea on that it would place an additional sales tax burden on consumers through CNG stations, in violation of the Supreme Court orders.
The committee chaired by Senator Nasreen Jalil decided not to recommend the Sales Tax (Amendment) Bill 2014 for putting before the National Assembly. Members of committee from ANP and MQM opposed the bill, PPP abstained from the panel while a Senator from PML (N) gave her vote in favour of the Bill. Nasreen Jalil said the committee was not going to recommend the bill to the National Assembly because there was no unanimity on the issue. We cannot vote against the court order; and no remedy for the said bill is available with the government from this committee, according to her.
She said that there were clear orders of the court and committee could not go against court’s orders. If an ordinary citizen has grievances on the issue of sales tax on CNG, the committee cannot recommend the Bill to the National Assembly against the will of the general public, according to her.
Secretary Finance Dr. Waqar Masood said the recommendations of the committee on Sales Tax (Amendment) Bill 2014 should be backed by a strong rationale. Whatever is the recommendation of the committee to the National Assembly, there should be a solid basis and a logic behind the decision, according to him.
FBR Chairman Tariq Bajwa told the committee that the Supreme Court of Pakistan vide its judgments dated 21.6.2013 and 10.12.2013 declared the extra sales tax @ 9% on the supply of CNG as against the Constitution and law. Accordingly, the court directed the FBR to deposit Rs.28 billion collected as extra sales tax with effect from 1.7.2007 to 10.12.2013 with the Registrar, Supreme Court of Pakistan. According to him, as the prevailing legal dispensation empowers the FBR to issue refund of sales tax only to the registered persons; it was found that the FBR is legally incapacitated to implement the directions of the Supreme Court of Pakistan. Immediate loss of revenue amounting to Rs.28 billion and future loss of revenue (not precisely quantifiable at this stage) can be effectively saved by urgently bringing certain amendments in the Sales Tax Act, 1990.
Briefing the committee, Chairman Federal Board of Revenue (FBR) Tariq Bajwa said that there was no change in the price of CNG for consumers due to Sales Tax (Amendment) Bill 2014. No new tax was imposed on CNG stations as only the mode/stage of collection had been changed.
Insofar as consumers of CNG were concerned, there was no change in the rate of sales tax being charged on the compressed natural gas, he said and asked: “When the Sales Tax Amendment Ordinance was promulgated on March 23, 2014, was there any news of price increase from any quarter?”
The government has authorized the gas companies to collect the sales tax on supply of gas to CNG stations instead of direct collection from the CNG stations. The rate and amount of sales tax payable on CNG remained the same as already notified by Ogra through its notification dated 17.12.2013. Thus, there will be no change in the consumer price of CNG or the amount of sales tax collected from the consumers. The price of CNG shall remain the same as already notified by Ogra.
The FBR Chairman added that legally it was not possible to return back Rs 28 billion sales tax to consumers of CNG. The sales tax law only allows refund to the registered persons and we cannot trace all the consumers on whom the burden of sales tax has already been passed, according to him.
Explaining the issue, the FBR Chairman said the levy of sales tax on supply of CNG at the rate of 26 % was declared ultra vires by the Supreme Court of Pakistan vide it’s judgments dated 21-06-2013 in the case titled as Engineer Iqbal Zafar Jhagra & Senator Rukhsana Zuberi Vs. Federation of Pakistan and others, and Judgment dated 10-12-2013 in Human Rights Cases Nos.14392/2013&790-G/2009 & Suo Motu case No.1/2013.
The impact of these judgments was that rule 20(2) (c) of the Sales Tax Special Procedures Rules, 2007 and sub-section(8) of section 3 of the Sales Tax Act, 1990 inserted by means of the Finance Act, 2013 were declared to be contrary to law and the Constitution of Pakistan. Accordingly, the Supreme Court of Pakistan directed the FBR to deposit extra sales tax collected at the rate of 9% in lieu of value addition on supply of CNG with effect from 01-07-2007 till 10-12-2013 with the Registrar, of the Court. The quantum of such sales tax was worked out by the FBR at Rs.28 billion.
Feeling aggrieved, a review application was filed by the FBR against the Supreme Court Judgment dated 10-12-2013, which was also dismissed by the Court in a summary manner.
The matter was thoroughly discussed in the FBR as well as with the Attorney General for Pakistan. Having deliberated upon various constitutional and legal aspects of the issue, it was found that a legislation is immediately required to give effect to the judgments of the court to the extent of eliminating discrimination between the sales tax rates of supply of CNG and other products and addressing other incidental issues.
Based upon the FBR’s proposal duly concurred by the Federal Minister for Finance and on the advice of the Prime Minister, the President was pleased to issue the Sales Tax (Amendment) Ordinance, 2014 on the 23rd March 2014 for the purpose above mentioned.
As required by Article 70 of the Constitution, the legislative bill namely Sales Tax (Amendment) Bill, 2014 was laid before the Senate on 14-04-2014.
The bill, on the one hand, aims at harmonizing sub-section (8) of Section 3 of the Sales Tax Act, 1990 with a general scheme of the sales tax law and the above referred judgments of the Supreme Court by charging supply of CNG at the general sales tax rate of 17% of value of supply of CNG to the consumers instead of charging tax @17% on the purchase of gas by a CNG station and extra sales tax of 9% to cover the value addition; thereby eliminating the discrimination between the rates of sales tax on supply of CNG and other products. On the other hand, the bill aims at making a clarificatory amendment in sub-section (2) of Section 3B of the Sales Tax Act, 1990, which already says that any claim for refund in respect of a sales tax amount whose incidence stands passed on to the consumers shall not be admissible to registered persons under Sales Tax Act, 1990. Since the identity of persons ultimately bearing incidence of such tax cannot be ascertained, the bill now proposed, aims at enacting the principle that such refund will not be payable to any other person. It may be highlighted that this change is also in line with the Article 172 of the Constitution which say that, “Any property which has no rightful owner shall, if located in a Province, vest in the Government of that Province, and in every other case, in the Federal Government,”, the FBR Chairman added.
