The Federal Board of Revenue (FBR) has asked the Sindh government to directly approach the Ministry of Finance for obtaining assistance for creation of the Sindh Revenue Services (SRS) for collection of value added tax (VAT) on services from next fiscal year.
Sources told Business Recorder here on Monday that the provincial government of Sindh had sought assistance of FBR in smooth working and implementation of the SRS, which would work as an autonomous organisation after implementation of VAT from July 1, 2010. In this connection, the provincial government has also hired a leading chartered accountant firm for creation of the SRS. The FBR should give time to their consultant/advisers for smooth implementation of the provincial revenue services, sources referring to the Sindh government added.
Responding to the letter of the Sindh government, the FBR has informed the province that it is not the mandate of the FBR to help in setting up provincial revenue services. The provincial government should approach the Ministry of Finance for obtaining assistance in setting up provincial revenue services, sources added. Sindh government is in the process of establishing a modern IT-based tax collection system in the province through a legal and institutional framework.
Tax authorities and drafters of VAT have repeatedly conveyed to the government and private sector that the FBR would not be in a position to implement a broad-based integrated VAT in case one province is not ready to empower the federation to collect VAT on services.
The Federal VAT Act 2010 and Provincial VAT Bills 2010 could not be implemented in the current circumstances where one province would collect VAT on services as allowed under the Constitution of Pakistan. The entire scheme of VAT would be disturbed in the absence of a uniform collection and implementation system in all provinces, sources said.
Apparently, the FBR has yet not drafted any alternative VAT law as a replacement of the Federal VAT Act 2010 and Provincial VAT Bills 2010. The integrated VAT laws were drafted on the assumption that the provinces would allow the FBR to collect VAT on services.
During the tenure of Shaukat Tarin, it was discussed in the meeting of Revenue Advisory Council, headed by Dr Hafiz Pasha, that 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.
To implement the Federal/Provincial VAT laws, Finance Ministry, Revenue Advisory Council and the FBR officials had agreed that a uniform collection mechanism is needed for all provinces to implement 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. So far, except one province, the remaining three are ready to allow federation to collect VAT on services.
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