PTBP Web Desk
The Federal Board of Revenue (FBR) is embroiled in a legal and administrative dispute with a leading Chartered Accountants (CA) firm over Rs. 1.8 million in sales tax deductions. The disagreement centers on the timing and applicability of sales tax provisions, adding to growing concerns about the FBR’s internal processes and monitoring mechanisms.
The conflict arose from a contract awarded to the CA firm for auditing Pakistan Revenue Automation (Private) Limited (PRAL). Delayed payments for the services provided between February 2019 and July 2019 led the firm to seek intervention from the Islamabad High Court. Following legal proceedings, the court directed the release of Rs. 60 million in payment, which was issued on June 27, 2024.
At the core of the controversy is the timing of the services rendered and the subsequent tax implementation. The CA firm argues that the sales tax deduction was unjustified as the applicable provision under the ICT (Tax on Services) Ordinance, 2001, came into effect on July 1, 2019, after their work was completed. This timeline has fueled the firm’s claims of inappropriate tax deductions.
To address the matter, the Directorate General of IT & DT has requested clarification from the FBR’s member (IR-Policy) regarding the legitimacy of the sales tax deduction. However, as of now, no response has been received, raising concerns about administrative inefficiencies within the FBR.
According to sources, the delay in addressing these issues highlights the need for improved coordination within the FBR. Such inefficiencies not only prolong disputes but also undermine taxpayer confidence in the system.
Adding another layer of complexity, the CA firm has faced scrutiny for not reflecting the disputed invoices in its monthly sales tax returns since 2019. This omission has drawn attention to the firm’s tax compliance practices. Despite these lapses, neither the concerned commissioner nor the field formations took timely action to address the discrepancies.
The Islamabad High Court has since been informed that the disputed amount has been made available on the tax portal for adjustment in the CA firm’s forthcoming returns. This development may provide temporary relief but does not resolve the underlying procedural issues.
The situation is further complicated by reports that other departments are making higher withholding tax deductions, allegedly influenced by increased scrutiny from the Auditor General of Pakistan (AGP). Sources indicate that the AGP has frequently identified discrepancies in withholding tax deductions due to the lack of effective monitoring by the FBR.
This has created additional challenges for taxpayers, who face uncertainty over inconsistent deduction practices. The absence of clear guidelines from the FBR has only exacerbated the problem, with taxpayers repeatedly requesting clarity on withholding tax procedures.
The ongoing dispute has highlighted several systemic issues within the FBR. The lack of clear communication and delayed responses to queries reflect poorly on the organization’s internal management. Moreover, the absence of effective monitoring mechanisms has allowed discrepancies in tax deductions to persist, drawing criticism from both taxpayers and oversight bodies like the AGP.
Taxpayers and withholding agents have emphasized the need for improved coordination and transparency in tax administration. Establishing clear guidelines and streamlining processes are essential steps to rebuild trust in the system and avoid similar disputes in the future.
