Sindh Govt stops collecting withholding tax for FBR

KARACHI: The Sindh government, through a notification on Tuesday, has asked the Federal Board of Revenue (FBR) to make its own arrangements for the collection of withholding tax from July 1, 2020.

Earlier, the Excise, Taxation and Narcotics Control Department government of Sindh was collecting withholding tax under Section 231B and 234 of Income Tax Ordinance on behalf of the FBR.

“The government of Sindh has decided to discontinue the collection of Withholding Tax U/S 231B and 234 on behalf of the federal board of revenue, collected by Excise, Taxation and Narcotics Control Department government of Sindh w.e.f 01.07.2020. This decision is taken in the light of the decision of Sindh Cabinet held on Feb, 19, 2020,” the notification said. “You are, therefore, advised to make your own arrangements for the collection of said withholding tax from July 1, 2020,” it added.

The Sindh provincial motor vehicle registration wings of Excise and Taxation department was collecting billions of rupees on behalf of FBR and after this decision, FBR has to collect this Motor Vehicle Tax directly.

At earlier meeting in February 2020, Sindh Chief Minister Syed Murad Ali Shah was told that the FBR was “only engaging” the provincial government for returning over Rs 8 billion the FBR had “unconstitutionally” deducted from the provincial government’s account, or else “it is not in the mood to refund the money”.

The officials at the meeting said from 2012-13 to 2016-17, the FBR had “unilaterally and unconstitutionally” deducted more than Rs 8,054.5 million from the provincial consolidated fund account.

Since the provincial government has been raising the issue of refund at different forums, the FBR was giving the impression that it would return the deducted cash.

The chief minister was told in 2012-13 that the FBR created an “incorrect demand” and deducted Rs 695.235 million from the provincial account without waiting for reconciliation.

An appeal was filed and the FBR’s appellate authority itself decided in favour of the Sindh government, but the amount had not yet been refunded.

Same issue was also raised few years ago and later FBR seized thousands of vehicles on road because of unpaid Withholding Tax on their registration time.

The federal government charges Rs 5,000 to Rs 1.5 million Withholding Tax at the time of vehicle registration.