The Federal Board of Revenue has decided to approach the Ministry of Defence to finalise the issue of taxing the income of the National Logistic Cell (NLC), as the tax authorities have already cancelled the income tax exemption certificate granted to the NLC under section 49 of the Income Tax Ordinance, 2001.

Sources told Business Recorder on Friday that the taxation of NLC income is a subject of dispute between FBR and NLC. Both the Law and Justice Division and Cabinet Division have informed the FBR that NLC is not part of the federal government having its own organisational setup. Legally, such organisations are not exempted from taxes under section 49 of the Income Tax Ordinance 2001.

Details of the issue revealed that the NLC claim exemption from payment of income tax on the basis that they are part of the government of Pakistan and hence income is exempt under section 49 of the Income Tax Ordinance, 2001. The section 49(1) of the Ordinance, 2001 grants exemption to the income of the Federal Government. However, sub-section (4) ibid provides that exemption under this section shall not be available to a corporation, a company, a regulatory authority, a development authority, other body and Institution established by or under Federal Law or other body or institution set-up, or controlled either directly or indirectly by the Federal Government. In order to adjudicate the claim of exemption by NLC, it is imperative to decide whether this concern is a part of the Federal Government or is a body set-up and controlled by the Federal Government.

According to the sources, in an attempt to resolve the dispute the matter was referred to the Ministry of Law, Justice & Parliamentary Affairs for their opinion after bringing on record the relevant facts and rival arguments. The Ministry of Law and Justice vide their O.M No. 899/2011-Law-I dated November 21, 2011 has opined that M/s NLC has its own organisational setup but for administrative purposes only it will be attached to the Planning & Development Division of the Government of Pakistan, which does not make it a part of the Government.

As an abundant precaution it was deemed appropriate to seek opinion of the Cabinet Division for determination of the legal status of NLC. Cabinet Division vide its U.O. No.4-9/04-Mm-1, dated January 17, 2012 clarified that NLC, although administratively attached with Planning and Development Division is not a part of the Federal Government having its own organisational set up. It was also stated that the advice of Law, Justice and Parliamentary Division vide their O.M No. 899/2011-Law-I dated November 21, 2011 was clear on the issue, sources maintained.

Accordingly, the exemption certificate issued to NLC was cancelled as its income was taxable. In the meanwhile, Ministry of Defence is also examining the issue of taxation of the NLC income. Accordingly, the follow-up action has been held in abeyance by the FBR. The FBR will make a request to the Ministry of Defence to examine the matter under reference at the earliest and FBR may be advised by the Ministry of Defence on the future course of action, sources added.