‘Illegality’ of Point-of-Sale fee throws up questions for FBR

ISLAMABAD: A nationwide nominal Rs1 Point-of-Sale (PoS) service fee on each sale invoice collected by hundreds of thousands of tier-1 retailers translates into tens of billions of rupees annually and is allegedly misappropriated by tax officials.

This fee, hardly noticed by customers, was imposed by the Federal Board of Revenue (FBR) about four years ago. At the time of its imposition in August 2021, it was announced that the amount so collected would be spent on promoting documentation, including rewards to customers through lucky draws. Initially, for a few months, there were actually some lucky customers who earned cash prices.

The prize scheme was suspended shortly without explanation, but fee collection continues even today and is being consumed by Federal Board of Revenue (FBR) officers without any audit or accountability.

FBR Chairman Amjed Zubair Tiwana told Dawn that the scheme was shelved before he took over from his predecessors. He, however, parried questions about how the collected funds are currently utilised and if ever subjected to audit, but conceded that over Rs1 billion was still available.

He said the FBR had initially authorised traders to install POS machines on their own through a third party, which apparently created issues. The FBR would now relaunch the scheme through its nominated vendors.

Finance Minister Muhammad Aurangzeb’s plan for expansion through digitalisation is focused on POS and track and trace system — both having track record of failures. The POS expansion without addressing weaknesses and legal cover could be problematic in future as well. To include this service fee in the modified invoice already prescribed in rule 150 ZEB(5)(6) of the Sales Tax Rules 2006, the FBR issued an SRO 1006(I)/2021 in August 2021, which provided that the sale invoice will contain the particulars already listed in the rule 150ZEB (5)(6). But this rule did not include Re1 fee in the modified invoice. However, FBR included this fee in the modified invoice under the SRO in violation of its preamble itself.

A bare reading of the Section 23(1) of the Sales Tax Act under which the SRO authorised this POS fee reveals that this provision does not empower FBR to levy any additional charge on the public. This provision only empowers the FBR to prescribe a modified invoice for tier-1 retailers. The FBR transgressed its power under section 23(1) and clandestinely included Re1 service fee in the modified invoice through SRO 1006(I)/2021 in violation of the SRO itself. The FBR assumed and exercised a power not delegated to it by the parliament and has drained billions of rupees from public pockets without any authority of law.

Section 76 of the Sales Tax Act provides for the imposition of service fees. The service fees levied under section 76 have been excluded from the definition of sales tax under section 2(29 A) of the Sales Tax Act. The FBR seemed to have avoided levying the POS fee under section 76 because, if levied and collected under this provision of law, the FBR was required to lay down the conditions, limitations and restrictions on the collection and utilisation of the POS fee.