1. Rs 17 billion refund issue: SSGC urges FBR to include supply of gas in Eighth Schedule
April 26,
2016
In order to tackle blockage of
over Rs 17 billion sales tax refunds of Sui Southern Gas Company Limited
(SSGC), the SSGC has proposed to the Federal Board of Revenue (FBR) to include
supply of natural gas by Petroleum Exploration & Production companies
(E&P companies) to gas distribution companies (SSGC) in the Eight Schedule (Schedule
Of Reduced Rates Goods) of Sales Tax Act, 1990.
According to the proposals of the
SSGC submitted to the FBR for consideration in budget (2016-17), it has
proposed reduced rate of sales tax of 8 percent under Eight Schedule of the
Sales Tax Act, 1990. The SSGC said the request was made for inclusion of supply
of natural gas by Petroleum Exploration & Production companies (E&P
companies) to gas distribution companies specifically Sui Southern Gas Company
Limited (SSGC) in the Eight Schedule (schedule of reduced rates goods) inserted
in the Sales Tax Act, 1990 (the Act) through the Finance Act.
It is strongly believed that the
supply of natural gas by E&P companies to gas distribution companies
specifically SSGC also deserves to be included in Eight Schedule for the
reasons mentioned in the ensuing paragraphs. SSGC has time and again submitted
justification for reduced rate to the FBR authorities as the current system
results in excessive payment of sales tax, resulting in huge accumulation of
refunds for SSGC.
Sales tax refunds due from the
FBR arise in SSGC's case due to the following reasons: The average cost of gas
purchased from fields allocated to SSGC is significantly higher than the
average cost for SNGPL. Under Cost Equalisation mechanism for both gas
companies, SSGC raises Debit Notes for difference of purchase prices between
SNGPL and SSGC. However, SSGC is not allowed to charge sales tax on such debit
notes.
Due to regulatory price
structure, the sale price charged to the consumers for supply of gas is lower
than the purchase price billed by E&P companies to SSGC, accordingly, the
input tax on purchases is invariably higher than the output tax on sales, which
results in sales tax refund due from the FBR each month, it said.
Manufacturers-cum-exporters of textile, leather, carpet, surgical and sports
goods are being provided facility of zero-rated gas supply to their units ie no
sales tax is chargeable on gas sales to such units. However, gas purchase by
SSGC from E&P companies is subject to sales tax @ 17 percent. Since the
above customers are zero rated, SSGC is not able to collect output sales tax
from them and hence the input sales tax paid by SSGC results in sales tax
refund due from the FBR.
Due to these factors, SSGC is
filing sales tax refund claim of around more than Rs 1 billion every month.
However, sales tax refunds are not being released by LTU/FBR, it said. Refunds
are continuously accumulating: Presently refunds have accumulated to over Rs 17
billion (actual refunds are substantially higher than the filed refunds of Rs
17 billion because sales tax returns/refunds are filed after 45 days of each
period) and such refunds are increasing each month. Due to these refunds, SSGC
is facing serious liquidity crisis, and it is in a situation whereby it is
borrowing from banks to pay sales tax to the government.
It is emphasized that the Federal
Government has issued a National Energy Policy, 2013 which was approved by the
Prime Minister of Pakistan which among other things, specifically requires the
FBR to ensure that GST refunds are paid and a mechanism is developed to avoid
future build-up of such refunds of energy sector entities. Relevant portion of
the policy is reproduced: "The GST refunds will be collected from the FBR
and a mechanism will be built to avoid future build-ups."
There is a clear focus in the
above policy to formulate a mechanism to avoid future build-up of such refunds.
Therefore, inclusion of supply of gas by E&P companies to SSGC will be
fully in line with the National Energy Policy. It is proposed that no loss of
revenue will occur due to inclusion of natural gas supply by E&P companies
to SSGC in the Eighth Schedule. On classifying the supply of natural gas under
Eighth Schedule of the Act, the input tax of SSGC will be reduced and refunds
are not likely to arise since the lower output tax due to regulatory price
structure will absorb such input tax. This proposal is totally in line with
Value Addition Tax (VAT) concept which envisages the taxpayer to pay sales tax
on its value addition only whereas in the present cases SSGC is paying much
higher sales tax in comparison to the tax payable on its value addition, which
is in contravention to the VAT principle.
The said proposal will not cause
any loss of revenue since the proposed reduction in rate will only reduce
SSGC's refund which mainly arises due to higher input tax on gas purchases as
compared to the lower output tax on gas supplies to the consumers because of the
regulated price structure.
Proposal-I: It proposed amendment
in Eighth Schedule: the following entry be included in the Eighth Schedule of
the Act: The FBR's consideration to above proposals shall be highly appreciated
since they will help in resolving SSGC's refund problems. Other proposals for
avoiding refund situation.
Proposal-II:
Though amendment in the Sales Tax
Withholding Procedures Rules, 2007, SSGC may be allowed to deduct 60 percent
withholding sales tax from the amount of sale tax shown on the gas purchase
invoice issued by E&P companies and adjust such withholding sales against
its input tax.
In this case, there would be no
loss of revenue to the government since the reduction in tax collection from
E&P companies will be offset by the reduction of SSGC's refunds and the net
impact on the government's revenue will be zero. Some proposals will not fully
resolve the SSGC refund problem, however, to some extent the quantum of monthly
refunds would be reduced.
Proposal-III:
Amount charged by SSGC to SNGPL
through Debit Notes for equalisation of gas cost should be considered as a
'supply' transaction and SSGC should be allowed to charge sales tax thereon to
SNGPL. On implementation of above proposal the output tax charged to SNGPL
would be adjusted against input tax by SSGC that wou1d reduce its monthly
refund, it proposed.
===============================================================
TABLE: SSGC suggests
===============================================================
S. No Description Heading Nos. Rate of Sales Tax Condition
7 of the First
Sales Natural gas 2711.2100 8% Nil
Tax Schedule to
the supplied to
Customs Act,
1969 Sui Southern
(IV of 1969) Gas Company
Limited
===============================
2. Revenue shortfall may be adjusted through new cut in PSDP
April 26,
2016
The government's failure to
realise the budgeted 50 billion rupee from privatisation and 65 billion rupee
from auction for 3G/$G accounts for considerable pressure from the Minister of
Finance Ishaq Dar on the Ministry of Information Technology to auction off one
3 G license by June this year to minimise the fiscal deficit.
Finance Ministry's budgeted Rs 50
billion inflows ($500 million) from privatisation of Pakistan Telecommunication
Company Limited (PTCL) in the current fiscal year. In previous years, the total
sum under this head was Rs 79 billion ($800 million) however the Finance
Ministry had budgeted the lower amount as it acknowledged that some of the
properties were not transferable due to litigation. However even the lower
amount is no longer expected to be realised.
Finance Minister has held a
number of meetings with Minister of State for IT Anusha Rehman during recent
weeks and urged her to expedite the process in this regard to ensure that the
budgeted revenue from this source is realised in the current fiscal year.
However, a participant in the meeting confided to Business Recorder that the prospects for auction for 3G/4G are
very bleak given the time factor and poor response from industry.
Sources in the IT ministry reveal
that the government has decided to auction one license instead of two, 850MHz
(3G), which was targeted for new entrants only, but it remained unsold due to
no interest in the market. The expected revenue from this source is around 30
billion rupees. However the remaining auction for 4G licence is not likely to
take place in the current fiscal year; it is expected next year. There would therefore
be a shortfall of 35 billion rupees under this head in the current fiscal year.
The Finance Minister held two
meetings with the IT minister this week past urging her to meet the budgeted Rs
65 billion non tax revenue from auction for 3G/4G licences as the amount was
critical to keeping the budget deficit within limits that would be acceptable
to the IMF. He continues to take weekly briefing from the IT Ministry and
Pakistan Telecommunication Authority (PTA) on the progress made on the auction
issue.
Under this sustained pressure the
Auction Advisory Committee, headed by Anusha Rehman, finalised the draft policy
framework for the auction for 3G frequency spectrum. Sources added that after
detailed discussions and weighing all the aspects, the Ministry has decided to
recommend a draft policy for the Prime Minister's approval to auction one
license, 850MHz frequency, in the current financial year 2015-2016.
As soon as the policy framework
is approved for auction of 850MHz, PTA will be asked to prepare the Information
Memorandum for the auction and sources claim that, PTA and MoIT are targeting
850MHz spectrum by mid June. The government on May 22, 2014 awarded 3G/4G
licenses to the successful bidders through auction process held on April 23,
2014. However, one licence of 4G with a base price of $210 million and another
3G license exclusively kept for new entrants with base price of $291 million
remained unsold in the auction as no new telecom operator showed any interest
in the auction. The government would be facing around Rs 85 billion revenue
shortfall which may be adjusted by cutting public sector development programme
if past precedence is anything to go by, informed sources told Business Recorder.
3. Sindh faces Rs 70 billion revenue shortfall, PA told
April 26,
2016
Less federal share and low
provincial collections pulled down Sindh''s revenues by Rs 70 billion over the
last nine months that slowed down the ADP and other budgetary releases.
Debating on the third fiscal quarter report - January-March 2016, Sindh Finance
Minister Syed Murad Ali Shah told the provincial legislature that the federal
government had not yet released Rs 60 billion to the province out of its total
share of Rs 370 billion over the period.
"Sindh received Rs 310
billion in the last nine months from the federal government against Rs 370
billion," he said, hoping the centre would release the remaining amount to
the province in the next three months. He also sought powers to enable the
provinces to collect revenues under all heads to manage their budgetary
expenditures. The other factor that scaled down Sindh''s revenues growth was a
low provincial collection, which was expected to be Rs 93 billion during the
three quarters but only Rs 83.8 billion were collected, he said, adding that
"the provincial collections also fell short by Rs 10 billion".
Overall, he said that the province faced Rs 70 billion revenues decline.
For the current fiscal year, he
said that the government had estimated Rs 726 billion revenue growth of which
the federal government had to provide Rs 494 billion. Total provincial revenues
collection was estimated atg Rs 124.6 billion mainly Rs 61 billion from sales
tax on services and Rs 63.6 billion from other taxes, he added.
The revenue expenditure for Sindh
was estimated at Rs 503.3 billion of which Rs 395.3 billion were released and
Rs 285.2 billion spent. For ADP, the government had earmarked Rs 162 billion in
the current fiscal budget of which Rs 142 was for the province and Rs 20
billion for districts. Till now, he said, Rs 88.4 of the provincial ADP had
been released and Rs 61.4 billion spent. A budget of Rs 12.8 billion of ADP has
been released to the districts, he said.
"If the provinces are
empowered to collect revenues, then we don''t need to depend on the federal
government," he told the house, saying that Sindh was still beating other
provinces and the center in revenues collection. "Sindh in taxes
collection stands at top," he said, adding that the Constitutional
structure enabled the federal government to collect more taxes under various
heads.
MQM''s Parliamentary Leader, Syed
Sardar Ahmed appreciated the finance minster for a better change in budget
making but urged him to improve it to the next level. He said that there should
be a mechanism to spend the released funds. He said that out of Rs 392 billion
revenue expenditure, the government could only spend Rs 285 billion while Rs
110 billion were still utilised. For education Rs 115 billion were released of
which Rs 82 billion were spent, he said, adding that Rs 49 billion were
released for health of which Rs 32 billion could be spent. For home department,
he said that the government had released Rs 64 billion of which Rs 41 billion
could be spent. "There is a need of funds monitoring," he said.
He demanded of the government to
abolish the food department for its state trading had plunged it into Rs 72
billion of debt. "Every year the government pays Rs 6 billion against its
debts," he told the house that "I don''t understand why debts are not
paid to the banks." PTI''s Samar Ali Khan asked the government to go for
direct taxes and reduce its revenues dependency on indirect ones. The
government should focus on revenue growth, he urged, saying that "the
government should also scale down its non-development spending". The house
will now meet on Tuesday morning.
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