India passed the GST bill on August 3, 2016 paving a way for a unified sales tax regime after an 11-year long struggle. What does this mean? Previously like Pakistan, India too had both sales tax on services and supplies being state and federal subjects, respectively. Overtime it so transpired that this caused friction, tax evasion, black money and increased interface between taxpayers and collectors. In the words of the Indian Prime Minister, it will also curb 'tax terrorism'.
Pakistan is at the same crossroads today. With the passage of the Finance Act 2016, the inter-provincial tax credit for sales tax paid at the provincial level has been stopped. There is a conflict between the federation and the provinces that who gets what. The taxpayer has to get multiple registrations, file multiple returns, in turn face multiple tax personnel, multiple risks of raids, think where to open warehouses and in the end the consumers pay more. The indirect taxation thus becomes cost of doing business.
It is said that one's weakness is one's strength provided one takes heed. The action of the federal government by disallowing inter-province tax adjustment gives a clear message that there is a disconnect between the government and the people (the consumers) and the businessmen.
It is a need of the hour that the provincial assemblies and National Assembly agree to a national GST plan. This requires a display of political acumen hitherto used sparingly like was seen at the time when the Constitution of Pakistan was passed.
The government has to reach out to the provincial governments on the issue. This will be a test of the political maturity. Like the Indian cabinet did away with a 1% additional levy on supply of goods and proposed full compensation to states for five years for revenue loss arising to states from the transition of GST.
But whatever and whoever we might have supported this is a challenge and the PML N government has to rise to it. Naturally there will be challenges like resource sharing, initial loss of revenue due to adoption of the GST bill, excess resources from the Provincial Taxes departments and so on.
But the focus has to be on the creation of a common national market. Provinces and the Centre have to pool their resources and a new mechanism has to be created.
Both the consumer and the entrepreneur will gain - consumer by lower tax rate and the entrepreneur by ease of doing business. The regulator also gains as this unification will also make it easier for FBR to track and consolidate taxpayers and increase the tax base.
So, the federal government needs to wake up to this challenge and lead from the front.
(The writer is a chartered accountant)
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