In a major step toward resolving one of the country’s long-standing tax disputes, the Federal Board of Revenue (FBR) and the Sindh Revenue Board (SRB) have reached an agreement on the collection of sales tax on toll manufacturing. The breakthrough was formally documented in a joint statement submitted before the Sindh High Court (SHC) on Thursday, effectively ending years of litigation and uncertainty for businesses engaged in contract-based production.
The dispute centered on whether toll manufacturing services — the process of producing goods on behalf of another party — should be taxed under federal law or provincial law. This overlap led to conflicting demands by both the FBR and the SRB, creating the risk of double taxation for manufacturers. The matter eventually landed before the courts, with multiple petitions and reference applications filed by affected businesses.
The Supreme Court’s order of June 6, 2024, and the SHC’s order of May 27, 2025, directed both authorities to find a resolution. Following a series of meetings between federal and provincial representatives, a settlement was finalized in line with the Sindh Sales Tax on Services Act, 2011, and the Sales Tax Act, 1990.
According to the settlement, services related to toll manufacturing became liable to Sindh Sales Tax (SST) starting July 1, 2013. This followed the inclusion of toll manufacturing in the Second Schedule of the Sindh Sales Tax on Services Act through the Sindh Finance Act, 2013. Later, through the Federal Finance Act, 2015, sub-clause (d) was added to Section 2(33) of the Sales Tax Act, 1990, extending federal jurisdiction over the same services effective July 1, 2015.
This overlapping jurisdiction created a period between July 2015 and June 2022 where toll manufacturing was taxable under both federal and provincial laws. The new agreement resolves this issue by confirming that no double taxation will apply. Any payments already made to either the FBR or the SRB will be considered final, subject to verification of records.
Further clarity was introduced when the SRB issued Notification No. SRB-3-4/21/2022 on June 28, 2022, which exempted toll manufacturing services from SST effective July 1, 2022. This removed the possibility of double taxation for the future and provided much-needed certainty for businesses.
To ensure smooth implementation of the agreement, both authorities have pledged that no coercive recovery actions will be taken until December 31, 2025. This window allows taxpayers and litigants sufficient time to present evidence of prior payments and settle their records.
With the signing of the joint statement, the SHC has formally disposed of the pending cases, marking a rare moment of cooperation between federal and provincial tax bodies. The resolution not only clears a backlog of litigation but also provides relief to businesses that had long operated in a climate of tax ambiguity.
Experts believe the settlement could set a precedent for addressing other federal-provincial tax disputes, strengthening the harmonization of Pakistan’s sales tax framework. For manufacturers, it offers a clearer and more predictable compliance environment, reducing the risk of overlapping tax demands that have historically hindered industrial operations.
By closing this chapter, the FBR and SRB have taken an important step toward greater coordination in tax administration, supporting both legal clarity and economic stability.