SC restores sales tax law in former FATA, PATA, suspends PHC verdict

The Supreme Court of Pakistan’s Constitutional Bench on Wednesday temporarily reinstated the Sales Tax Amendment Act in the former FATA (Federally Administered Tribal Areas) and PATA (Provincially Administered Tribal Areas) by suspending the Peshawar High Court’s (PHC) verdict, which had declared the application of the Act unconstitutional.

The five-member bench, led by Justice Aminuddin Khan, issued the interim stay order while hearing appeals filed by the Ghee and Steel Mills Association. The court agreed with the argument that the PHC had exceeded its jurisdiction in striking down the law and granted the temporary stay, which restores the sales tax regime in the previously exempted tribal regions.

The PHC had earlier annulled the implementation of the Sales Tax Amendment Act in these areas, declaring it unconstitutional. However, the Supreme Court’s decision effectively reversed that ruling, at least for the time being, and issued notices to all concerned parties for further proceedings.

During the hearing, Advocate Hafiz Ehsaan, representing the Ghee and Steel Mills Association, argued that the PHC had overstepped its authority. He emphasized that the High Court cannot act as a substitute for Parliament, asserting that such orders for customs clearance require legal backing. He also highlighted the significant financial implications, noting that the case involves billions in tax revenue.

While the court did not specify a date for the next hearing, the temporary restoration of the Sales Tax Amendment Act enables the Federal Board of Revenue (FBR) to continue collecting sales tax from businesses operating in the ex-FATA and PATA regions until the final adjudication of the case.

Tax exemptions for ex-FATA/PATA to be reviewed in budget

In a related development, the government is set to review the Rs45 billion worth of tax exemptions granted to the former tribal areas in the upcoming 2025-26 budget as the Federal Board of Revenue (FBR) is unlikely to extend the sales tax exemption beyond June 30, 2024, according to a news report.  

In the Finance Act of 2024, exemptions for the ex-FATA/PATA areas were retained until June 30, 2025, for the import and supply of goods, as well as the provision of electricity. However, the exemption on imports will now be conditional, requiring the presentation of a pay order instead of a post-dated cheque, which will only be released after the concerned Commissioner issues consumption or installation certificates within six months.

During a recent meeting of the Senate Standing Committee on Finance and Revenue, members endorsed a proposal from the business community to limit the extension of these exemptions beyond June 30, 2025. 

Saleem Mandviwalla, the chairman of the committee, pointed out that industries in the formal sector, such as steel and ghee, cooking oil, are at a disadvantage due to these exemptions. He also mentioned that the committee is aware of the issue and will make recommendations to address it.