The Federal Board of Revenue (FBR) has ordered its field formations to begin collecting sales tax on toll manufacturing within the borders of all provinces once jurisdictions have relinquished their rights for sales tax collection on “Toll Manufacturing.”
The FBR has given orders to the Chief Commissioner Inland Revenue throughout the country on Thursday. Under the heading of provincial sales tax collection, Provinces were collecting sales tax on “Toll Manufacturing,” but they would now collect this revenue and be a part of indirect collection by the FBR.
The FBR’s command stated that the National Tax Council (NTC) made the decision in its meeting on September 16, 2021, that “Toll Manufacturing” should not be taxed by provincial governments.
As the sales tax on toll manufacturing falls under the purview of the FBR, it is recommended that suitable action be taken for the benefit of taxpayers in jurisdictions covered by each field formation’s jurisdiction, according to FBR.
During the final meeting of the NTC, it was decided that sales tax on toll manufacturing will be retained by the federation, whereas taxation rights in the transport sector would be transferred to the provinces.
The taxation of the construction business was decided in such a way that the constitutional arrangements were followed, and a technical committee composed of all revenue authorities would devise operational methods.
The finance minister, in his capacity as head of the NTC and having consulted with the FBR and the provinces, decided that restaurant taxes will continue to be collected by the provinces. A reference based on discussions with the provinces will be submitted to the Law Division for an opinion on whether or not this decision should be upheld.
The National Tax Commission was also considering several options for establishing a single portal for filing sales tax returns, which is now under development and is anticipated to be launched by the first week of October 2021. The implementation of a single portal for returns filing will lower taxpayer compliance costs while also improving Pakistan’s Ease-of-Doing Index rating.
In addition, the FBR will create a standard income tax return form in collaboration with the provincial governments. The provinces currently have authority to collect sales taxes on all services, including toll manufacturing, transportation enterprises, and restaurants.
The NTC had already directed the FBR to examine the revised definitions of “Goods” and “Services” in light of the common definitions reached by provincial revenue authorities.
The position of the province on these issues was far more adamant than that of the FBR. The finance minister acknowledged this stance while making these decisions, as it was properly warranted.
What does it imply for a firm to engage in international toll manufacturing? It’s when a foreign investor provides input goods to an exporter in order for the latter to produce finished items that may be sold internationally.
FBR has defined the procedure, its rules and regulations for toll manufacturing. The user is not required to remit foreign exchange. Toll manufacturing was entered into by a user who does not live in Pakistan. The consumer must provide an NOC from State Bank of Pakistan stating that there are no EIF requirements on the input items. After producing the output goods, the consumer must export them following submission of an NOC from State Bank of Pakistan for Export without an E-Form, as well as confirmation that service fee has been repatriated to the user in foreign currency as agreed upon in the contract.