World Bank consultants on VAT say RGST silent on sales tax on immovable property

The international consultants of the World Bank (WB) on the Value Added Tax (VAT) have observed that the reformed general sales tax (RGST) is silent on the sales tax treatment of the immovable property. Sources told Business Recorder here on Monday that the international VAT experts of the WB including Rebecca Millar and Christophe Wazerzeggers have submitted a report on the RGST to the Ministry of Finance and the FBR.
According to the report, the consultants understand from the GST Agreement that "construction services" are Group-III services to be taxed "in GST mode" by the provinces, with the tax being collected and distributed by FBR. The GST Agreement is otherwise silent on the GST treatment of immovable property.
In addition to construction services, the draft Provincial Act taxes supplies of real estate "by way of lease, hire or right to use immovable property". It should be noted that the December 2009 Dubai drafts included all forms of supply of immovable property in the tax net, with exemptions for residential property. Subsequent changes made to the drafts deleted the taxing provision for sales of immovable property, retained the tax on supplies by way of lease, and left the exemption provisions untouched. This has lead to the current confusing situation in which there is no logical relationship between the taxing provisions and the exemptions in Schedule 1, item 6 of the draft Act (which exempts the supply of vacant land, agricultural land and residential land on the basis that the earlier versions of the law would have taxed such supplies as 'sales'.) The exemptions have, therefore, become nonsensical, in that such forms of supply are already out of scope of the GST, international VAT experts added.
The Record Note on GST on services agreed between federation and provinces said that the Group-III shall include Services that constitute a significant proportion as inputs into other supplies or involve transactions across provinces, shall be delegated by the provinces to FBR for collection. Currently, these could include financial services, including banking, insurance, stock market operations, etc, advertising services, construction services, franchising services and other services that constitute a significant proportion as inputs into other supplies and involve transactions across provinces.
The FBR will provide input/output adjustment and refunds for services in Group-III. Net tax proceeds from services in Group-III will be placed in a separate fund which will be distributed among the provinces, as an interim measure by accepting provisionally for one year the stated position of each province and the federal government picking up the differential to make for the demand of each province, Record Note added.