Revenue collection: Tax harmonisation does not mean creation of single entity: Punjab PRA chief

Punjab Revenue Authority (PRA) Chairperson Zainul Abedin Sahi Thursday said harmonization of taxes between the federation and provinces does not mean creation of one organization of revenue collection.

This he stated while addressing a session of the 22nd Sustainable Development Conference titled 'Ease of Doing Business in Pakistan; a Case for Tax Harmonization,' organized by Sustainable Development Policy Institute (SDPI).

Sahi ruled out the possibility of creating one organization under the concept of harmonization of taxes. He stated that the sales tax was devolved to the provinces and Punjab Revenue Authority collected Rs 110 billion last year, adding revenue collection of the provinces has increased; however, he agreed that lack of harmonization is an issue.

He said that provinces are conscious and working for harmonization of taxes. He said if all the federal and provincial tax authorities follow the same tax laws and rules then that is not harmonization.

During recent years, efforts are being made to resolve various issues including overlapping of taxes, jurisdiction and compliance after provinces were allowed fiscal autonomy to collect sales tax on services. After the sales tax on services collection was devolved to the provinces, the first provincial revenue board was created by Sindh which was followed by other provinces and every province made laws to protect its own interests.

Soon the provinces realized that there are some challenges and the first one was of multiplicity of compliances because a company having business in goods and services across the country is answerable to five different authorities.

Another issue was of jurisdictional overlap and a taxpayer paying tax in one province might require paying the same tax in another province as well and was paying double the amount from what was required.

He said that this was decided among the provinces that these are the three main issues and all the provinces started working on how to resolve these issues.

He added that three weeks ago Punjab Revenue Authority was the first one to have by-monthly meeting. He added, "In the last meeting, we have decided three things - working for a single return, negative list and to resolve the problems of origin and destination on sector wise basis."

He said that Sindh Revenue Board has taken the responsibility for providing research and economic side of negative list issue and after completing the research in first week of February 2020, the provinces would move towards negative list from the next budget. Additionally, he stated that provinces are also moving towards single return sector by sector basis by the first quarter of the next fiscal year starting from telecom sector because telecom sector is easier one.

He said as these two projects move forward, a number of problems would automatically be resolved.

He emphasized the need for defining the harmonization of taxation system first, as it is multifaceted issue, which involves legal, administrative and functional challenges. He said that all the provincial revenue and tax authorities have different rules and procedures as per their respective provincial requirements, which cannot be harmonized, but solutions can be identified through effective collaboration and coordination among the provinces and federation.

Mohammad Irshad, former chairman Federal Board of Revenue (FBR), said that all tax institutions need to be harmonized because this is a big impediment in the smooth working of businesses. Obviously it has impacts on revenue as these are well connected.

He said unless different tax and revenue collection authorities integrate and harmonize their efforts, the challenge of revenue target will remain unresolved. Dr Irshad said new technologies and system of automation can help overcome this challenge. He said that the current FBR measures on the automation of the tax system was cosmetic and incomprehensive, which requires a comprehensive digital solution through a heavy investment in digital solutions.

He further said that harmonization in tax is creating a conflict between tax collectors and tax payers and it is the issue. All the tax reforms projects have prime objectives of tax harmonization and ease of doing business but there is no significant progress. The issue of harmonization sprang after the 18th constitutional amendment by devolving sale tax authority to provinces and similarly there was an emergence of a number of revenue bodies in all the federating units, creating immense hardships for businesses, he added.

Irshad said, "This issue is again in the limelight because the IMF program is there and we are going for reforms. It is essential to integrate all tax collecting institutions. Until this thing is done, we would be moving around the circle. We need one national revenue service. Too much investment in technology is cosmetic unless it improves human resources."

The other experts called upon the government to decentralize, devolve and delegate the tax authorities and its administrative functions at district level. They also urged the government to remove flaws in the tax system, such as double taxation and multiple tax compliances through effective mechanism of tax harmonization among different tax bodies at federal and provincial levels. Centralization of taxation system is creating hurdles for the business to flourish, they added.