ISLAMABAD  -   Disputing the levying of general sales tax on electricity supply to Azad Jammu and Kashmir by Federal Board of Revenue, the Power Division has termed it as violation of the agreement signed between governments of Pakistan and AJK in 2003, at the time of Mangla Dam raising, and proposed that no GST should be charged on the power supply.

The dispute between the Power Division and Federal Board of Revenue, over the issue of charging GST from Ex-Wapda Discos on electricity supply to AJK, landed in the Economic Coordination Committee (ECC) of the Cabinet, official source told The Nation. According to the source, the Power Division has moved a summary in this regard to ECC arguing that an agreement for raising of Mangla Dam was signed among the then Ministry of Water and Power, WAPDA and government of AJ&K on June 23, 2003. According to the agreement, the Ministry shall ensure that the CBR (now FBR) does not levy the GST on electricity generated in and supplied to AJ&K since the GST is applicable in Pakistan and AJ&K already charges GST through its tax department.

All rules prescribed by the government of Pakistan with respect to GST would be applicable to the government. Consequently, the relevant DISCOs (IESCO, PESCO & GEPCO) are supplying electricity to AJ&K without charging any GST and treating the same as zero rated in accordance with the provision of the bilateral agreement. Despite the fact that the bilateral agreement between two governments cannot be made subservient to any subordinate legislation, even if so exist or made to life, FBR does not recognize supply to AJ&K as zero rated and pushing for the recovery of the GST. It needs to be emphasized that the matter carries financial implications for the DISCOs, by putting them in severe financial crunch, but also for the power sector in terms of swelling of circular debt. Further, due to uniform system of tariff methodology presently in vogue in the country, if the tax demanded by FBR attains finality the same will have to be passed on to the consumers and will be in violation of clause 5.3 of the bilateral agreement signed with Azad Government of the State of Jammu & Kashmir and the GoP.

The supply of electricity to AJK should always have been and will be deemed to be zero rated supply in terms of section 4  of Zero rating of Sales Tax Act as it has always been the intention and spirit of the GoP to supply electricity to AJK without charging sale, tax, said the Power Division. The Power Division has proposed that to resolve the long overdue issue between Discos and FBR, the federal government may by incorporating amendments in Fifth Schedule to the Sales Tax Act, 1900, provide that electricity supplied by DISCOs to AJK be charged tax at the rate of zero percent. The ECC has deferred the summary, the source said.