ISLAMABAD: The government has convened an inter-provincial meeting of key stakeholders on Wednesday to try forestalling a strike call by Oil Tankers Contractors Association (OTCA) against a problematic levy of sales tax on services by the provinces.

“In order to avoid an unforeseen situation, an urgent meeting has been scheduled on Aug 24 (today),” said a letter from the Ministry of Petroleum and Natural Resources to all the four provincial chief secretaries, federal secretary finance, and chairmen of Federal Board of Revenue, OTCA, Oil and Gas Regulatory Authority and managing director of Pakistan State Oil.

The letter described as “most immediate rush to desk” informed the invitees that OTCA had threatened to go on strike if the issue was not finalised before Aug 25. “It is apprehended that oil supply chain is likely to be disrupted” and hence an emergent meeting for “immediate resolution”.

The provincial governments, particularly two larger provinces Punjab and Sindh and the FBR have paid little attention to formulate a distribution formula for sales tax collection at different places on various services. The provinces have levied sales tax on the services of inter-city transportation or carriage of goods by road or through pipeline or conduit.

The oil tankers contractors have been reporting to the government that they were being subjected to double taxation and had threatened to go on strike to disrupt fuel supplies that can affect public and private transport and power generation based on furnace oil or diesel. This is the third strike call by the OTCA on the issue in 6-7 months and every time postponed on the assurances of the petroleum ministry to address their genuine grievances.

The petroleum ministry, however, has little role on the issue except that it is exposed to fuel supply disruptions as revenue matters have to be settled by the Ministry of Finance and the FBR in consultation with the provincial governments, said a senior official of the ministry requesting anonymity.

The critical point of dispute on sales tax on transportation/carriage services is between the provinces of Punjab and Sindh. Punjab collects this tax at destination and Sindh at the origin for obvious reasons. But transporters end up paying the same tax at two different points.

The stakeholders need to first agree on some middle point and then amend provincial sales tax laws passed by the provincial assemblies in June. Top it all, the federal government disallowed input tax adjustment against provincial sales tax collection on various services through an amendment in its sales tax laws in June.

The oil industry has also been asking the federal government to withdraw double taxation at the provincial and federal level through general sales tax on services and goods or to allow a proportionate increase in the prices of petroleum products.

The industry feels aggrieved by withdrawal of two separate statutory regulatory orders (SROs) by the Ministry of Finance and Revenue of Feb 6, 2008 and March 26, 2014 to disallow provincial sales taxes as input tax adjustment at the federal level.

Through the Finance Bill 2016-17, the government has disallowed the input tax claim of provincial services sales tax against sales tax on goods under the Sales Tax Act of 1990 with effect from July 1, 2017. This meant the oil industry would not be entitled to get adjustment for tax on services like port charges, Fauji Oil Terminal charges, wharfage, white oil pipeline charges and other service charges.

Published in Dawn, August 24th, 2016

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