Sindh agrees to resume collection of withholding tax on motor vehicles for FBR

• Sindh government agrees to restart collection of withholding tax on motor vehicle registration
• Sindh govt had stopped collecting the tax after federal government deducted Rs5 billion from provincial accounts

KARACHI: A dispute between the federal and provincial tax authorities in Sindh is likely to be resolved after three months as the Federal Board of Revenue (FBR) has agreed to return Rs1 billion deducted by the central government from the province, sources told The News on Thursday.

Following the move, the Sindh government has also agreed to restart the collection of withholding tax on motor vehicle registration.

Officials, who spoke to the publication on the condition of anonymity, said the Sindh Excise and Taxation Department resumed collection of withholding tax on registration of motor vehicles after the FBR agreed to return the first tranche of Rs5 billion.

The PPP-led government had stopped collecting withholding tax at the time of registration of new motor vehicles in July last year after the FBR recovered an amount of Rs5 billion from the provincial bank account maintained at the federal level.

Read more: FBR reaches out to Sindh govt over tax collection dispute

The centre tried convincing Sindh to restart the collection of the withholding tax, but the Sindh government stated that it will not resume working as a withholding agent till FBR returned the money.

The provincial tax authorities are authorised to collect the withholding tax under sections 231B and 234 of Income Tax Ordinance 2001.

The provincial excise and taxation department stated that it had stopped the withholding tax collection due to an order from the Sindh Cabinet.

FBR officials said they were forced to return the amount to Sindh due to the unbendable stance of the province.

A senior FBR official confirmed to The News the revenue body is paying one billion rupees out of the claimed Rs5 billion and a payment challan is ready for transfer.

“The remaining amount will be paid out in due course,” the official said.

Read more: Cabinet approves Javed Ghani's appointment as FBR chairman

The Sindh excise and taxation department had started the collection of withholding tax from October last year. The FBR official said the provincial department assured the apex tax authority about the collection on registration of motor vehicles from July to September.

The Regional Tax Office Karachi received Rs222 million under section 231B in December, significantly 222% higher when compared with the Rs69 million in the same month of last year. Similarly, the tax office received Rs207 million under section 234 in December, 15% higher when compared to the Rs181 million in the same month of last year.