The Ministry of Finance will approach the Sindh government to convince the provincial authorities for collection of Value Added Tax (VAT) on services by the federal government for implementation of a broad-based integrated VAT Law from July 2010. The issue was discussed threadbare during the third meeting of Revenue Advisory Council headed by Dr Hafiz Pasha at the Federal Board of Revenue here on Monday.
Finance Minister Shaukat Tarin was also present in the meeting. Sources told Business Recorder that the council discussed the proposal of the Sindh government for hiring of consultants/consultancy services to establish a system of collection of VAT on services by the provincial government.
During the meeting, Finance Ministry, Revenue Advisory Council and the FBR officials agreed that a uniform collection mechanism is needed for all provinces for implementation of an integrated VAT in all provinces. The levy and collection of VAT on services is the basic right of the provinces. Till capacity of the provinces is being developed, the provincial governments of Punjab, NWFP and Balochistan have agreed to allow the federation to collect VAT and the agreed amount, as per the National Finance Commission (NFC) decision, would be transferred to the provinces.
The Finance Ministry would also try to convince the Sindh government to allow the federation to collect VAT on services till the provincial government was able to develop infrastructure and enough capacity to effectively collect the levy on services.
Under this arrangement, the federation would collect the VAT on the behalf of provinces and the due share would be transferred to the provincial governments. Once the provinces would have the necessary capacity to collect, implement and monitor the VAT, they can collect the levy on services in future. In this regard, the Finance Ministry would take up the matter with the provincial government.
If a uniform method for collection of VAT on services is not being adopted, it would result in problem for claiming input tax adjustment. For example, if an importer has paid VAT at the import stage at Karachi Port and engage in manufacturing in Punjab, a legal issue of input tax adjustment would be raised. Therefore, a uniform system of levy and implementation of VAT is necessary in all four provinces. Even if one province would not agree, it would hinder implementation of a broad-based VAT and entire change in new VAT Law would be required.
Sources said that the purpose of the Provincial VAT-2010 is to introduce and implement a broad-based tax on sales and purchases of services to be integrated with the federal taxes on sales and purchases of goods and terminal taxes on goods, or passengers carried by the railways, sea or air, taxes on their fares and freight, each tax to be cross-credited against the other to form a broad-based tax on consumption throughout Pakistan.
The entire scheme of VAT would be disturbed in the absence of a uniform collection and implementation system in all provinces. Revenue Advisory Council has also directed the FBR to start consultative process with the stock exchanges for collection of capital gains tax (CGT) on stock exchanges from next fiscal.
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