By: Zulfiqar Ali
The Prime Minister of Azad Kashmir waived off around Rs 88 crore in sales tax on transportation services to contractors without any legal justification. According to the law, this tax can be waived only in cases such as national security, natural disasters, national food security in emergencies or implementation of bilateral and multilateral agreements. However, there is no threat to national security, natural disasters or emergencies in Azad Kashmir, nor is there any issue of implementation of bilateral or multilateral agreements. Despite this, this tax was waived, which has no legal justification.
This tax was waived at a time when a case related to this issue is pending in the court. A government official said on condition of anonymity that the government should have waited for the court’s decision. Interestingly, the tax exemption notification was issued by the Food Department instead of the Inland Revenue Department.
According to an official document of the Food Department of Azad Kashmir, contractors were liable for more than Rs 877.38 crore as sales tax on transportation services procured for the delivery of wheat and flour between 2019 and 2023. In 2019, the Legislative Assembly of Azad Kashmir had imposed a 16 percent sales tax on transportation services under the Finance Act 2019, which remained in effect until 2022. Later, this rate was reduced to 15 percent under the Finance Act 2022. This tax is applicable to all services procured for the delivery of goods.
However, the Food Department neither collected this tax from the contractors nor made any deduction for four years, although whenever advertisements for transportation services are issued for the delivery of wheat and flour, it is clearly stated in them that all applicable taxes will be applicable. Despite this, the Food Department failed to collect the tax for four years.
Some officers of the Food Department maintained that they were not aware of the imposition of sales tax on transportation services, hence the deduction was not made. This stance is surprising because this tax was formally approved by the Assembly and its details were provided to all the concerned institutions, ministers, MLAs and officers.
On the other hand, the contractors say that they were not given any formal information about this tax nor was the tax deducted from their bills. According to them, it is unfair to ask them for past taxes now.
In the past, three proposals were under consideration at the government level on this issue. The first proposal was that the Finance Department should provide additional funds so that this tax could be deposited in the government treasury. The second proposal was to recover the arrears, while the third proposal was to exempt from the tax under Section 3(2A) of the Azad Kashmir Sales Tax Act 2001 read in conjunction with Section 13(2A) of the Sales Tax Act 1990, provided that there were circumstances such as national security, natural calamities, national food security in emergencies or implementation of bilateral and multilateral agreements.
However, it is noteworthy that the two governments of the Pakistan Tehreek-e-Insaf and the subsequent coalition government could not waive this tax because there was no legal justification for it.
On the contrary, the Pakistan Peoples Party government waived this tax, although there were no such exceptional circumstances that could provide legal justification for this decision.
Importantly, this tax was waived at a time when the government is facing a shortfall of Rs18 billion in tax collection during the first nine months of the current fiscal year (July 2025 to March 31, 2026), which could increase to Rs25 billion by the end of the fiscal year (June 30, 2026). The government had set a tax collection target of Rs85 billion for the current fiscal year, however, given the current situation, it is estimated that only Rs60 billion in tax will be collected. Thus, the total revenue of the region this year will be about Rs87 billion, which is insufficient even for the salaries and allowances of government employees.
***
Share this content:
