Goods and services: India has concurrent right of taxation compared to Pakistan: Ferguson

The federal and provincial Indian governments have acquired the concurrent right of taxation of both goods and services as compared to Pakistan where Federal Board of Revenue (FBR) imposes sales tax on goods and provinces levy sales tax on services.
According to a report prepared by a leading chartered account firm A.F. Ferguson & Co, titled, 'Review of New Indian Goods & Services Tax Law in Pakistan's Perspective', India has taken the step in a right direction as in the modern world it is almost impossible to distinguish between goods and services and to make a case of disallowance of input tax on goods against services and vice versa.
Practical operational analysis of the proposed system in India reveals that there be an input - output based state GST (SGST) and Central GST (CGST) for transactions within the State (Province). In case of an inter-state transaction, IGST will become applicable, being in principle a tax on import into that state. On transaction within the importing state, importing state's SGST and CGST will apply with a corresponding input allowance of integrated general sales tax (IGST) paid when the goods were imported. This effectively means that differentiation between goods and services has been done away with for the levy of taxes and a mode has been designed to compensate the right previously available. This is a major departure from Pakistan law and present Indian law as now there has been an effective merger of right of taxation. Both Federal and Provincial Governments have acquired the concurrent right of taxation of both goods and services.
Under the new GST system for which constitutional amendments have been approved by the Parliament, a special mechanism has been designed for GST. That system is effectively 'Three Integrated Tiered' as the Goods or services as identified in the law will be subject to simultaneous application of these three levies. The report stated that the supply (sales of goods or rendering of services) within the state will be taxed by the State and Centre separately at the rates to be specified. Supply outside the State shall be subject to an additional tax called IGST against which input tax will be adjustable against a particular mechanism.
In India, GST is based on destination principle, and not on origin-basis. For that reason, Centre proposed to impose additional 1% tax on intra-state supplies to compensate loss to State where supply originates. (This 1% additional tax has been removed in the final amendment bill passed by the Parliament). At present, in principle and practice, both sales tax on goods and services in Pakistan are charged on 'origin' principle. In the new Indian law, tax shall be paid/collected by the supplier on supplies made from the purchaser being the place and person of destination.
The report said that the constitutional amendment bill has been passed by Upper House (Rajya Sabha) on August 3, 2016 and National Assembly-Lower House (Lok Sabha) on August 8, 2016. At least half of the States will need to ratify the Constitution Amendment Bill with Two-Third majorities, before the President will give assent. It is anticipated that new GST law will be implemented across Centre and State by April 2017.
Indian tax authorities will form a General Sales Tax (GST) council to examine issues relating to goods and services tax and make recommendations to the Union and the States on parameters like rates, exemption list and threshold limits. The lack of any such authority in Pakistan is the cause of major problems which are being faced in Pakistan such as disallowance of input tax.
The report said that the GST Council will be the formed under the Constitution to examine issues relating to goods and services tax and make recommendations to the Union and the States on parameters like rates, exemption list and threshold limits. The Council shall function under the chairmanship of the Union Finance Minister and will have the Union Minister of State in charge of Revenue or Finance as member, along with the Minister in-charge of Finance or Taxation or any other Minister nominated by each State Government. It is further provided that every decision of the Council shall be taken by a majority of not less than three-fourths of the weighted votes of the members present and voting in accordance with the principles ie the vote of the Central Government shall have a weightage of one-third of the total votes cast, and the votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast in that meeting.
It said that in Pakistan, the right of indirect taxes on goods lies with the Federation whereas the rights of Indirect Taxes on services are with the provinces. In India, situation operates in reverse direction and goods fall within the ambit of Provinces whereas services fall within the purview of the Federation. Application of Indirect Taxation on VAT mode and separate/concurrent right of taxation between the Federation and the Provinces poses peculiar problems in proper and effective implementation of VAT.
Pakistan's experience in this field is not unreasonable. In overall context, things are settling down and gestational issues are expected to be settled soon. In a larger context, as described above, this is not an unusual situation.
It said that under the present constitutional framework in India till so far, Central Government was levying/collecting sales tax on services, and States (Provinces) were collecting sales tax on goods. In Pakistan, the position is the same except that the order is different as identified above, A.F. Ferguson & Co added.