Islamabad - The Khyber Pakhtunkhwa government is against the levy of service tax on petroleum products, saying it will increase the oil prices in the province by Rs500 per ton.

“We have conveyed our concern over the issue to the federal government,” an official source told The Nation here on Sunday.

The official also alleged that Sindh and Punjab were collecting big chunk of services tax, but there was no mechanism of who and where the tax would be collected.

All the provinces, except Balochistan, have levied the sales tax on the inter-city transportation or carriage of goods by road or through pipeline or conduit.

The provinces are charging 17 percent tax on the services.

“For example, an oil tanker being charged two rupees per litre oil is paying 34 paisa tax at the rate of 17 percent, which is deducted from two rupees earning,” the official explained.

“But so far the provincial governments and the FBR have failed to formulate collection and distribution formula for sales tax collection at different places on various services,” he informed.

He said that in the absence of mechanism, it will create distribution problem for the provinces.

In an inter-provincial meeting of key stakeholders, held on August 24, it had been decided that the issue of service tax will be resolved within one month.

The meeting had been called to avert a strike by Oil Tankers Contractors Association (OTCA) against the levy of sales tax on services by the provinces.

The officials of the Ministry of Petroleum, the provincial chief secretaries, federal secretary finance and chairmen of Federal Board of Revenue, OTCA, Oil and Gas Regulatory Authority had attended the meeting.

The OTCA had threatened to go on strike if the issue was not finalised before Aug 25, and it was feared that oil supply chain would be disrupted by the strike. 

“But the strike was called off after the government assured to resolve the issue by September 24,” the official said.

“I think this will be the last time as OTCA has postponed their strike several times on the assurances of the government to address their genuine grievances,” he speculated.

Much of the dispute over sales tax on transportation/carriage services is between Punjab and Sindh.

Punjab collects this tax at destination and Sindh at the origin. Resultantly, transporters end up paying the same tax at two different points. The oil industry has also been asking the government to withdraw double taxation at the provincial and federal level or to allow a proportionate increase in the prices of petroleum products. “Being the last destination, KP is going to be the biggest victim of the services tax,” the source said.

“Due to services tax, an oil tanker starting from Rawalpindi and going to Peshawar will pay Rs500 extra per ton oil. On one tanker Rs3, 000 will be paid under the services tax,” he elaborated.