The Central Board of Revenue (CBR) has decided to impose central excise duty (CED) in VAT mode on professional service-providers to meet the ambitious revenue target of Rs 650-660 billion in next fiscal 2005-06 and raise tax to GDP ratio. Official sources told Business Recorder on Wednesday that the contribution of the manufacturing sector was more as compared to services sector in the past.
However, the services sector has shown substantial growth during the last few years, but its contribution to the national exchequer remained negligible. The services sector was grossly under-taxed as the sector contributed 50 percent of the GDP while its receipts were quite low.
Therefore, the tax authorities have principally agreed to use the powers of the central excise law to bring more services in the tax-net in coming budget.
The CBR has the provision to levy CED in VAT mode through the excise law and the SRO is issued for notifying the names of services to be brought under the tax-net.
The CBR is also not getting any revenue from property transactions and capital gains. Secondly, the stamp duty has been reduced by the provinces. Thirdly, the income tax on profit on sale of immovable property is not applicable. This sector is also untaxed which has the potential to make some contribution to the revenue collection.
Fourthly, if we look at the turnovers and capitalisation of stock exchanges, their actual contribution is nil, CBR officials said, adding: "Stock exchange and real estate dealers and developers are making phenomenal profits. Their huge earnings go almost untaxed."
Fifthly, the tax on agriculture was a political and constitutional issue, but the multilateral agencies like the World Bank, the IMF, and the ADB frequently insisted on its imposition. The agriculture sector constituted 25 percent of the GDP, while its contribution was not all commensurate with the potential.
Officials said that now the real problem was how to bring the services sector fully under the tax system, and how to raise receipts from the agriculture sector. The data revealed that all these major sectors, including services are not contributing anything, which resulted in the lowest tax-GDP ratio in Pakistan as compared to other countries.
The CBR has to bring new service-providers into the tax-net to meet the revenue target of new financial year. Otherwise, it would be a very difficult task for the tax managers to raise revenue in 2005-06.
Officials said there is a need of a mechanism for levying sales tax on more services without facing any agitation or resistance from new sectors. It is a challenge for the policy-makers to devise methodology to collect revenue from these untaxed sectors.
It may be recalled that the CBR had compiled a list of 50 service-providers, including financial services and professionals during last fiscal. But, only few services were brought under the GST net in the budget 2004-05.
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