FBR could not meet targets during 2009-10: tax on services to be transferred to provinces

The Federal Board of Revenue (FBR) was unable to meet the revenue collection target of some key services including banking or non-banking services during 2009-10, which would be transferred to provincial governments under the 'reformed general sales tax' (RGST).
Sources told Business Recorder here on Monday that the powers and jurisdiction of most of the important services would be transferred from the FBR to field formations after approval of provincial general sales tax bills by respective provincial assemblies. However, tax machinery could not meet the targets assigned to the field formations to generate revenue from key services except telecommunication during 2009-10. The FBR data collection for 2009-10 has shown that some major services have shown better collection when compared with previous fiscal year, but these services were unable to amass the targets assigned for 2009-10.
According to sources, to augment the base of services for generation of additional revenue, ports and terminal operators have been brought into the fold of FED VAT mode. A collection of Rs 1.1 billion has been realised against projection of Rs 2.5 billion at the time of budget 2009-10.
Secondly, the FED in VAT mode was introduced for stockbrokers. Keeping in view huge profit of stockbrokers, FED in VAT mode has been introduced @16 percent. A collection of Rs 433 million was realised against an estimate of rupees one billion at the time of budget 2009-10.
Thirdly, like banking and non-banking services, insurance services were also transferred from FED to FED (VAT) mode in 2009-10 and tax rate was also increased from 10 percent to 16 percent. Although the collection had improved by Rs 2 billion from Rs 3 billion to Rs 5 billion, yet it could not reach the projection for additional collection of Rs 4 billion at the time of Budget 2009-10.
Fourthly, the transfer of banking or non-banking services from FED to FED (VAT mode) was announced in the budget 2009-10. The rate was also revised upward from 10 percent to 16 percent making it at par with the other services in sales tax. Although the collection from banking and non-banking services improved significantly from Rs 3 billion in 2008-09 to Rs 5.2 billion during 2009-10, yielding an increase of Rs 2.2 billion, yet it remained below the projection of Rs 7.5 billion made at the time of 2009-10 Budget.
Fifth, the rate of federal excise duty in VAT mode on services from telecommunication was increased from 15 percent to 21 percent to generate additional revenue announced in the Budget 2008-09. Resultantly, the telecom sector had reflected only 11 percent growth in the collection during 2008-09 against robust growth achieved in 2006-07 and 2007-08. In the Budget 2009-10, however, the tax rate for telecommunication was slashed down from 21 percent to 19.5 percent to provide incentive to the sector and relief for the common man. Table 2 reflects that the collection of sales tax from telecommunication has significantly come down during 2009-10. Hence, a decline of Rs 5.4 billion was recorded in the collection against revenue projection at the time of Budget 2009-10, an FBR report added.
As far as impact of revenue measures relating to sales tax and federal excise are concerned in 2009-10, the additional collection has been Rs 6.2 billion against the projection of Rs 25.5 billion. Although tax receipt from measures like cigarettes and services increased substantially but remained below the projections, FBR stated.
Following introduction of the provincial General Sales Tax Bills by the provinces in their respective assemblies, the FED would be abolished on different services including advertisement on closed circuit TV advertisements on cable TV network, advertisements in newspapers and periodicals, facilities for travel including services provided or rendered in respect of travel by air of passenger within the territorial jurisdiction of Pakistan, services provided or rendered in respect of travel by air, inland carriage of goods by air, shipping agents, telecommunication services, services provided or rendered in respect of insurance to a policy holder by an insurer, including a re-insurer in case where direct insurance service has been provided, services provided by banking companies or non-banking financial companies, services provided by property developers or promoters for development of purchased or leased land for conversion into residential or commercial plots and construction of residential of residential or commercial units, services provided of rendered by stockbrokers and services provided or rendered by port and terminal operators in relation to imports excluding stevedoring services.