Telecom companies'' issue may cause reshuffle in FBR

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Weekly Updates - Traders' Diary

The cases of telecom companies on interconnection charges are likely to become a highly controversial basis for a high-level reshuffle in the Federal Board of Revenue (FBR) and field formations. Sources told Business Recorder here on Wednesday that the transfers and postings are expected in the field formations of the FBR following the beginning of new fiscal, based on the performance of the Chief Commissioners of Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) during 2011-2012.

According to sources, the FBR Chairman believe in autonomy of the FBR Members for transfers and postings in the field formations. The performance of the field formations in achieving the revenue collection targets for 2011-12 would be the main criterion for transfers and postings in the FBR. If the Chief Commissioners and Commissions have failed to achieve the target, it would be analysed whether this has happened due to inefficiency or another economic factor. "If the senior tax officials have not performed well and failed to deliver the desired results, there is no justification to allow them to stay on the key positions in the field formations", sources said.

Responding to a query, sources said that the LTUs have performed well and shown good performance during 2011-12. This is a remarkable performance of the LTUs to generate revenue in prevailing economic circumstances. The achievement of the assigned targets would be one of the key factors behind transfers and postings. These transfers and postings in the field formations is a regular feature and every year such reshuffle takes place.

When asked about any possible change in the position of the post of the Member Inland Revenue, sources said that the government can appoint any senior tax official as FBR Member. The seniority list and experience of the tax officials in the field formations and the Board is known to all concerned circles. The reputation of the tax official is known to everyone due to his repeated transfers and postings in the field formations. The official with honest and good reputation has been respected by all functionaries in the government departments. However, the decision of the transfers and postings of FBR''s Members was taken at the highest level.

Explaining the legal issue involved in interconnection charges, tax experts explained that telecommunication companies are paying FED (in sales tax mode) on telecommunication services at the rate of 19.5 % of the call charges. Telecom companies provide interconnect services to each other but do not pay FED on the interconnect service charges paid by them on the grounds that FED is paid on the total amount billed to the customer for the taxable service including ''Interconnect Charges'' and no separate FED for ''Interconnect Charges'' is required to be paid by the telecommunication companies. Moreover, even if a telecommunication company is forced to pay FED separately on the transfer of money to the other company on account of ''Interconnect Charges'', the FED paid on such amount by the company becomes its adjustable input tax, thus reducing its payable amount of FED by exactly the same amount. The Government is, therefore, not going to benefit by a single rupee in this case.

The cases initiated on the basis of non-payment of FED on interconnect charges are, however, decided against the telecommunication companies by the Adjudicating Authority as well as the Appellate Tribunal. The telecommunication companies have filed reference applications before the High Court against an order of the tribunal. The telecommunication companies approached Large Taxpayers Unit, Islamabad through their representatives for consideration of their case under section 65 of the Sales Tax Act, 1990, for a waiver of their past liabilities on account of ''Interconnect Charges''.

The concerned officers forwarded the case to FBR for its consideration. The FBR, examined the case and ascertained that no loss of revenue was involved, as FED on interconnect service charges even if recovered, would have to be allowed as input tax to the provider of interconnect service and having already discharged their liability they would be obliged to revise their returns and claim refunds. It is a fact that had this amount being recovered from the telecom companies the same would have been claimed as refund by the telecom companies by revising their tax returns. On this basis there was no loss of revenue and the provisions of section 65 of the Sales Tax Act could have been used.

Sources confirmed that the FBR has exercised its powers under section 65 for granting exemption of sales tax under Sales Tax Act, 1990. The following exemptions were granted under Section 65 of the Sales Tax Act: SRO805(I)/93 has granted exemption on Woolen Fabrics to M/S. Lawrancepur Woollen and Textile Mills Ltd; SRO554(I)/2000, Loose or unbranded butter to M/S. Nestle Milk Pak Ltd Lahore; SRO824(I)/2000, Formaldehyde resin, urea formaldehyde moulding compound, melamine formaldehyde moulding compound and polystyrene resin to M/S. Dyno Pakistan Ltd, M/s. Rapid Ltd & M/s. Pakistan Styrene (Pvt) Ltd; SRO837(I)/2000, Hand-knotted carpets to M/s. Afghan Carpet, Karachi; SRO239(I)/2001, Bus and truck chasis to M/S. Hinopak Motors Ltd, M/s. National Motors Ltd, M/S. Sindh Engineering Ltd & M/s. Ghandara Nishan Diesel Ltd; SRO215(I)/2002, Loose or unbranded butter to M/S. Noon Pakistan Ltd; SRO605(I)/2002, Speedometers for vans and pick-ups to M/s.Automotive Components Limited; SRO454(I)/2003, Foryl CP to M/S Ameeje Valleegee and Sons (Private) Limited Karachi; SRO784(I)/2003, Activated Bleaching Earth to M/S. Phoenix Chemicals, Sheikhupra; SRO913(I)/2003, Activated Bleaching Earth to M/S. Pakistan National Chemical Industries (Pvt) Limited, Karachi to M/S. Ittehad Chemicals Limited, Lahore and M/s. Neelum Chemicals (Pvt) Limited, Lahore; SRO74(I)/2004, Motor cycle ignition switch sets to M/S. General Locks (Pvt) Limited; SRO345(I)/2004, Sliver Cans to M/s. Polycon Pakistan (Pvt) Limited, Lahore; SRO104(I)/2005, Acrylic sheets to M/S. Lucky Plastic Industries (Pvt) Ltd, Lahore; SRO105(I)/2005, Acrylic sheets to M/S. Wazirabad Poly Industries (Pvt), Ltd, Lahore; SRO217(I)/2005, Everyday UHT Tea Whitener to M/s. Nestle Milkpak Ltd, Lahore; SRO434(I)/2005, Desk machine to M/s. New Chaudhary Agricultural Mechanical Engineers, Multan; SRO598(I)/2005, Bellapas Plaster to M/S. Dr Sethi (Pharma) Industries, Chichawatni; SRO.868(I)/2005, Liquor to M/S. Avari Hotels ltd, Lahore; SRO.869(I)/2005, Liquor to M/S. Pearl Continental Hotel, Lahore; SRO.870(I)/2005, Liquor to M/S. Pearl Continental Hotel, Peshawar; SRO.131(I)/2007, Liquor to M/S. Flashman''s Hotel, Rawalpindi; SRO.409(I)/2008 to Liquor, M/s. Best Western Hotel, Islamabad; SRO.816(I)/2008 to Liquor, M/S. Serena Hotel, Faisalabad; SRO.249(I)/2010, Liquor to M/s. Islamabad Marriot Hotel, Islamabad and SRO.287(I)/2010 has granted exemption on Liquor to M/s. Pearl continental, Rawalpindi under section 65 of the Sales Tax Act.

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