There is no ramping up period in taxation: Chairman, Sindh Revenue Board

BR Research: Tell us about the structure and major focus of Sindh Revenue Board.
Tashfeen K. Niaz: The Sindh Revenue Board reports directly to the Chief Minister of Sindh. Interaction with taxpayers has been kept at a minimum. We decided at the onset that there will not be any windows for collections. This necessitated automation of the tax authority. The conventional procedure required tax payers to approach field offices and other relevant officials.
On the contrary, we discourage taxpayers' coming to our offices. Registrations can be completed online, filing can be done likewise. We are also the first and only provincial tax authority to have obtained approval from the State Bank of Pakistan to collect payments online through any scheduled bank of the country. We are currently in a testing phase to sort out issues. We are hopeful that online collections may commence by September 1, 2015.
The organisation was set up by bringing in competent people from the private sector. The first chairman of SRB laid out the rudimentary structure. The second chairman took up the task from there and rolled out the relevant legislations including the SRB Act.
When I came in as chairman, we have worked on regularising employees, structuring internal policies. We are trying to create an organisation similar to any multinational corporation. Plus we have strong government support and our independence is respected. So all these things have helped us to develop an exemplary tax authority in the country.
In the last five years, we have never revised our targets and have always managed to meet them. Our collections tower beyond other provinces, even though Punjab has many more major cities than Sindh.
BRR: Sales tax on services was initially set at 16 percent. Gradually it has been reduced to 14 percent. Explain that trend.
TKN: Three years ago, we decided that taxation rates should come down over time. So in the first year, we kept our rate unchanged while the Federal Government raised its rate on sales tax. In the following two years; we have lowered rates yet increased our collections. This has been done by expanding the base and improving our own efficiencies. I believe this trend also shows that taxpayers are co-operating with us.
BRR: Equitable taxation demands that all incomes should be taxed; irrespective of the sector from which they are earned. On the contrary, many professions are not in the tax net in the country. What is the stance of the SRB on this?
TKN: Within the economy, there are regulated and unregulated sectors. Obviously more work remains to be done on the latter sector. However, there are challenges in the regulated sectors as well. Given that we have operational independence, we take actions as we encounter these challenges.
I believe that within the regulated industries, we have encompassed income from most professions. The clear exceptions are healthcare and education sectors where we did not get an approval from the Sindh Assembly, last year. We did not pursue these sectors, this year. We do not concentrate on one or two sectors; the SRB is committed to focusing on taxation across sectors.
BRR: There is a case of encroachment of the domain of provincial authorities, by the federal authorities. What is your experience in the context of SRB?
TKN: The Federal Government has to understand the spirit of the 18th Amendment is to give the provinces their financial independence. That legislation clearly states that they will withdraw Federal Excise Duty (FED). They have not issued any notification to that effect yet. They previously enforced FED on brokers; however a court order stopped them and decided in favour of provincial tax authorities' right to collect the same. We are taking active interest in these cases and we are also working with other tax authorities of the country. The clear principle is that there should not be double taxation.
BRR: Income from services needs to be taxed across the board, what measures have been taken to tax professionals such as doctors, lawyers, beauticians, etc.
TKN: In the case of tax on lawyers, the Sindh High Court has currently ordered a stay. In no other case, have the courts awarded a stay. For doctors and healthcare professionals, we have advised a floor. For instance, those doctors that charge more than certain amount of money per patient consultation.
The Government of Sindh has two clear priorities that are worth mentioning here. We have to ensure that the impact on the common man is not detrimental and that business is not discouraged. For this reason, especially in the case of healthcare and education sectors, our suggestion is to set minimum criteria in terms of patient fees charged and monthly fee per student, respectively. As far as retail brands go, we are collecting taxes from them.
BRR: SRB has implemented six percent tax on rental of real estate (for non-residential use). Contrarians argue that such tax is a federal purview; not provincial. How do you respond?
TKN: The fundamental argument about goods and services comes down to interpretation. It may be argued that a restaurant is a service provider; not simply a seller of goods, as it offers an ambience; waiters, hosts, chefs, etc. Customers go to restaurants to enjoy the whole experience that is provided by that business and this constitutes a service.
Similarly, rent is a service that is provided by the owners of a real estate property, to its tenants. Cars are rented out as a service; as is property. Rental services may be provided on various assets, however it remains a service. The same argument may be extended to various inputs within the manufacturing industry as well, because there are many services that also go into the manufacture; besides raw materials.
Having said that; we have signed a Memorandum of Understanding with other tax authorities. Under the MoU, all the tax collectors have agreed to have mutual consultations about different areas that are taxed by each of these authorities. Obviously, we all function as part of the State and thus the taxation initiatives have to be co-ordinated jointly.
BRR: The newly enforced sales tax on rental services is effective from July 1, 2015. Does that mean that property owners had to start filing this tax, this month?
TKN: That depends on the accounting policy adopted by the filer. The Sindh Revenue Board has not mandated that individuals and establishments should file their taxes on a pro rata basis; filers may follow accrual or cash basis.
Let's assume that a person's rental payment is Rs100. The tax is additional so the tenant will have to pay Rs106, inclusive of the tax. The landlord is the collection agent, in this process. Hence the landlord has to file it. If someone is unable to file online for whatever reason, they can reach out to us for assistance.
BRR: Not many people even know about the tax on rental services. For instance, non-resident Pakistanis, retired persons, widows and others may not be aware of the tax; or their responsibilities in its collection. What redress is available for these cases?
TKN: The SRB has been running an awareness campaign to inform people about taxes in general and in particular. At the end of the day, ignorance of the law is no excuse. However, we have facilitated the process greatly; returns may be filed online through our website.
Clarity and further information can also be obtained from our representatives through the hotline. If an individual is able to rent out a real estate for non-residential purpose, that individual also has to file relevant returns for it. There is no ramping up period in taxation.
The process of paying taxes is simple. You register, file and it tells you what you owe. That amount has to be paid. Whenever a new tax is implemented, a campaign is run to inform people about it. Whoever does not pay in a timely manner; will face penalties.
BRR: What is the law in the case of residential properties being used for commercial activity?
TKN: If the premises is being used for commercial activity; the tax is payable.
BRR: Much of the prime real estate in Karachi is leased or rented on the principle of Pagri. In these cases, the rent payment is nominal. How is their tax liability calculated?
TKN: The tax is on the rental amount. We will not do anything that the law does not allow us to do. Pagri is domain of other authorities.