Sales tax on contract manufacturing will be the responsibility of the Center: NTC

The word “taxes” is seen engraved at the headquarters of the Internal Revenue Service (IRS) in Washington, DC, United States, on May 10, 2021. REUTERS / Andrew Kelly
  • Tarin stresses the need to develop a consensus between the Center and the provinces concerning the harmonization of sales taxes.
  • The President of the FBR describes the areas in which to develop a harmonization agreement between the Center and the provinces.
  • NTC will set up a single portal to complete sales tax returns by the first week of October.

The National Tax Council (CNT) decided on Thursday, after due deliberation with the stakeholders, to entrust the responsibility for collecting the sales tax on contract manufacturing to the federal government and to invest the rights tax on transport companies in the provinces.

Contract manufacturing is a process in which a company supplies raw materials or semi-finished products to a third-party service company.

A statement released by the NTC said that Federal Minister of Finance and Revenue Shaukat Tarin chaired an NTC meeting at the Finance Division.

The meeting was also attended by provincial finance ministers, the secretary of the Finance Division, the chairman of the Federal Board of Revenue, the chairman of the Sindh Revenue Board and other senior officials.

Tarin welcomed participants to the meeting and stressed the need to develop consensus between the federal government and the provinces on issues relating to sales tax harmonization.

He stressed the need to resolve tax issues in a spirit of cooperation between the federation and the federating units.

During the meeting, the President of the FBR made a detailed presentation and outlined the areas for further deliberations to collaboratively work out an arrangement regarding the harmonization of the Goods and Services Tax between the Center and the provinces.

The RBF and provincial finance ministers set out their respective positions on the taxation of transportation, restaurants, toll manufacturing and construction.

The meeting was informed that the NTC is working on setting up a single portal for completing sales tax returns, which is expected to be launched by the first week of October.

The statement said the measure will reduce compliance costs for taxpayers and help raise Pakistan’s score on the ease of doing index.

Among the other decisions taken at the meeting, the one regarding taxation on construction companies was to share the right to tax according to the constitutional provisions, and a technical committee composed of all tax authorities would decide on the operational modalities.

The federal minister has decided that the provinces will continue to tax restaurants. However, a referral drafted in consultation with the provinces will be forwarded to the Law Division for advice on the decision.

In addition to this, it was also decided that detailed comments will be sought from Provincial Tax Authorities (PRAs) for the development of a single sales tax portal acceptable to all. Likewise, FBR will also develop a standardized tax return format, in consultation with provincial governments.

All stakeholders agreed to move forward in the spirit of greater national interest and greater harmony under the aegis of the NTC.

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