Sindh Revenue Board & FBR in Conflict Over Sales Tax on Toll Manufacturing

Sindh Revenue Board (SRB) has categorically conveyed to the Federal Board of Revenue (FBR) that it would continue to collect sales tax on “Toll Manufacturing”, despite National Tax Council’s (NTC) decision allowing FBR to collect sales tax on “Toll Manufacturing”. National Tax Council, in its meeting held on September 16, 2021, had decided that provinces shall not tax “Toll Manufacturing”, which will rest with the FBR. The FBR had issued a letter to its field formations dated October 28, 2021, in which the FBR had directed its field formations to start collecting sales tax on toll manufacturing. As the sales tax on toll manufacturing falls under the domain of the FBR, it is, therefore, requested that necessary action may be taken for the guidance of the taxpayers falling under respective field formations’ jurisdiction, the FBR’s instructions added. Now, the Sindh Revenue Board has demanded the FBR immediately withdraw the letter dated October 28, 2021, on toll manufacturing. The FBR has been informed that the provinces shall continue to levy and collect the sales tax on the services provided in the matters of manufacturing for others on a toll basis, in accordance with the respective provincial laws and rules until the decision about the non-levy of federal sales tax on the food/beverages served in hotels and restaurants located in the provinces is simultaneously and explicitly endorsed by the FBR, SRB stated. In the NTC meeting held on September 16, 2021, it was agreed that provinces shall not levy/collect sales tax on toll manufacturing services and the federation shall, likewise, not levy/collect sales tax on the food/beverages served in hotels and restaurants located in the provinces. The decision had an element of quid pro quo. However, the FBR’s aforesaid letter dated 28th October 2021 does not mention the agreed decision about the non-levy of federal sales tax on the food/beverages served in provincial jurisdictions, SRB letter added