Senate Stan-ding Committee on Finance and Revenue has recommended rationalisation of penalties under the Reformed General Sales Tax (RGST). It also proposed inclusion of all exempted food items of the Sales Tax Act 1990 along with medicines and stationery for education into the Exemption Schedule of the GST Bill 2010.
The Senate Standing Committee on Finance concluded its proceedings here on Thursday with Senator Ahmed Ali of MQM in the chair. The committee has recommended that the chartered accountants have to give the recorded reasons for a special audit to the registered persons under section 72 of the GST Bill 2010. The accountant, having powers of an officer of Inland Revenue, would be empowered to conduct special audit, including forensic audit, of records or refund claims of any registered person.
In case of powers of tax officials to call for information or documents and access to records and premises under section 84 of the GST Bill, the committee recommended that the reasons to call for information or documents and access to premises under this section shall be recorded in writing and conveyed to the registered person.
After detailed analysis and review of each clause of GST Bill 2010, Senator Ahmad Ali said that the political parties have not deviated from their principal stance and proposed amendments in the GST Bill 2010 to improve the bill. "The principal stand of the committee can not be compromised," Ahmad Ali said.
On the conclusion of the meeting, Ahmad Ali said the meeting has been concluded and report has been finalised on the GST Bill 2010. During the committee proceedings, Senator Kulsoom Parveen was of the view that if my party would direct me to vote against the GST Bill, I will caste vote against the GST Bill in protest.
According to the recommendations of the committee for amendment in the GST Bill 2010, the committee unanimously recommended that in Section 2(ii), for the words "whose income", the words "the income of which" be substituted. In Section 2, in clause (V) in clause (c), after the word "Modaraba", the words "and the like financial institutions", shall be added.
In Section 2(vii), after the word "and" appearing first time, the words and comma "where applicable, includes" be added. In section 2(xi) the words "whether or not the provision of such entertainment is lawful" be deleted. In Section 5, in sub-section (3), clauses (c) and (d) shall be omitted. In Section 8(2), the words "Subject to section 8(1) be added before the words "The provisions of this Act".
In Section 14, in sub-section (l), in clause (a), the words and figures "section 25 of shall be omitted. In Section 28, in sub-section (2), for the word "despite" occurring in the beginning, the word "Notwithstanding" shall be substituted. In Section 38, for the existing heading, the following shall be substituted, namely:- "Withholding agents".
In Section 72 (1), after the word accountant appearing first time, the words "the reasons for a special audit to be recorded in writing arid conveyed to the registered persons" be added. In Section 74(2), the words "every director" be deleted and the definition of the officer should include a director exercising executive authority.
In Section 84, in sub-section (1), in clause(c), after the word "control" the words and comma "computers, electronic gadget and" shall be inserted. In Section 84, at the end the following proviso be added. Provided that reasons to call for information or documents and access to premises under this section shall be recorded in writing and conveyed to the registered person.
In the first schedule, the exempt items should also include food items exempt under the Sales Tax Act, 1990; for education purposes and medicines. In the third schedule, the penalties specified at No 9 be rationalised. According to the report of the senate committee on the GST Bill, the Bill was presented in the National Assembly November 12 by Senator Dr Abdul Hafeez Shaikh, Minister for Finance.
On the same day a copy of the Bill was laid in the Senate by Senator Syed Nayyar Hussain Bokhari, Leader of the House on behalf of Minister for Finance and Revenue. The Acting Chairman referred the Bill to the Standing Committee on Finance for consideration and report. Under Article 73 of the Constitution of Pakistan the Senate is allowed 14 days to submit its recommendations on a money bill to the National Assembly. In this case the deadline for transmission of recommendations is 26th November 2010.
The Standing Committee held 5 meetings from 22nd to 25th November 2010 to consider the Bill and formulate its recommendations. After thorough discussion and deliberation the Committee unanimously recommended fifteen amendments in the Bill for consideration of the Senate. Due to the absence abroad of Senator Ahmed Ali, Chairman of the Committee, the meetings held on 22nd and 23rd November were Chaired by Senator Islamuddin Shaikh, who was chosen by the Members under Rule 154 (2) of the Rules of Procedure and Conduct of Business in the Senate 1988.
The meetings were attended by the members including Senator Ahmed Ali, Chairman, Senator Ms Sughra Imam, Member, Senator Dr Safdar Ali Abbasi, Member, Senator Islamuddin Shaikh, Member, Senator Ilyas Ahmed Bilour, Member, Senator Muhammad Talha Mahmood, Member, Senator Mrs Kalsoom Parveen, Member, Senator Mohammad Ishaq Dar, Member, Senator Professor Khurshid Ahmad, Member, Senator Haroon Khan, Member, Senator Dr Abdul Hafeez Shaikh, Minister for Finance, Revenue, Ms Hina Rabbani Khar, Ex-Officio Minister of State for Finance & Economic Affairs, Member and Ex Senator Chaudhry Muhammad Anwar Bhinder, on special invitation.
Senator Professor Khurshid Ahmed, Senator Haroon Khan, Senator Talha Mehmood and Ex-Senator Chaudhry Muhammad Anwar Bhinder raised the issue of non jurisdiction of the Majlis-e-Shoora to legislate on Provincial subjects, as both goods and services arc combined in the Bill under consideration.
It was argued that after the passage of the Constitutional Amendment the subject of tax on services had been devolved to the Provinces and Majlis-e-Shoora Parliament could not legislate on that subject until and unless all the Provincial Assemblies pass a resolution under Article 144 of the Constitution of Pakistan and authorise it to legislate "tax on services" as the subject is not enumerated in the federal legislative list contained in the fourth schedule of the Constitution.
Senators Haroon Khan and Dr Safdar Ali Abbasi were of the view that the imposition of the General Sales Tax Act 2010 will lead to inflation which will be impossible for the Government to control. Senator Haroon Khan argued that other sources of revenue including tax on agricultural income should be tapped.
He also advocated 20 percent reduction in Government expenditure. Senator Talha Mahmood proposed imposition of refundable import duty on Afghan Transit Trade. He stated that he would not support the Bill under consideration. Senator Ilyas Ahmed Bilour was of the view that retailers would be willing to pay a fixed tax rather than indulge in cumbersome documentation of their sales and purchases. Professor Khurshid Ahmed suggested that this Bill should be implemented from the next financial year with two different rates of tax for different categories of goods.
Senator Mohammad Ishaq Dar stated that his party's position on GST Bill 2010 is clubbed with 4 conditions, which include imposition of wealth tax, initiation of measures for eradication of corruption in Government which is estimated at Rs 350 to 400 billion, adoption of meaningful austerity measures starting from the top and checking losses of approximately Rs 300 billion in 8 public state enterprises.
Salman Siddique, Secretary Finance responded that sales tax is a Provincial subject, however an agreement has been reached with the provinces wherein tax on stand alone services would be collected by the provinces themselves while for integrated services, input adjustment was necessary and the task of collection of tax on this class of services was assigned to the FBR.
The federal government is not legislating for the provinces as there will be five laws, one for each Province and ICT. However all the four Provincial laws will have to be similar otherwise there would be accounting problems. Moreover the Bill under discussion has been discussed and agreed with the Provinces and the Provincial Bills have been shared with the Federal Government. The FBR is a collecting agent for the Provinces and will regulate only to the extent allowed by the Provincial law.
Senator Abdul Hafeez Shaikh, Minister for Finance and Revenue stated that the Bill already has two rates of tax which are zero and 15 percent. The tax has not been levied on essential items like food, vegetables, poultry, life saving drugs and education. He said that it was not a new tax but the GST law in operation is being reformed.
The prices of commodities which currently carry 17 percent rate of GST will decrease while the prices of commodities which have zero rate of duty will go up slightly. He said that he is ready to brief the committee on agricultural income tax whenever it is convenient to the Members. Thereafter the Members without prejudice to their principled positions proceeded to discuss the Bill.
The Committee recommended to the Senate that the recommendations may be transmitted to the National Assembly. After agreeing to the unanimous recommendations some Members of the Committee desired that their principled position should be reiterated in the Committee report.
Senator Professor Khurshid Ahmed, in his written note of dissent stated as follows: "I am totally unconvinced that the constitutional requirements of Article 144 and the restrictions imposed on the Parliament about its jurisdiction in case of legislation outside the Federal Legislation List have been fulfilled.
I still feel that appropriate provincial legislation and resolutions from the Provincial Assemblies under Article 144 were a constitutional requirement, before any legislation could be made in the Parliament in respect of the Sales Tax on Services and all matters directly or indirectly related to that," he said.
The present bill has been introduced tinder the pressure of external financial institutions particularly the IMF. It has been brought to the Parliament in haste. Proper homework has not been done. This also becomes clear during the Committee meetings.
The timing of this bill is also very inappropriate in view of the severe economic crisis in the country, the tsunami of inflation, energy shortages, escalating closure of industries and devastating effects of floods. Major switch over to an expanded sales tax regime based on VAT mode in the context of such a situation is a very ill-advised step.
We remain unconvinced about the FBR's capabilities for the implementation of this revised law particularly in relation to timely refunds and operationalisation of a state of art Tax Management System which could run electronically without human intervention, we have very strong reservations in respect of other critical factors, ie political support, public awareness, co-operation of all major stakeholders etc. Without their co-operation, the viability of the new system is in question. I hope the country is spared a repeat of what happened in respect of the much-hyped Musharraf-Shaukat Aziz fiasco of documentation of the economy in early 2000's.
He said that our basic objection about the regressive nature of all indirect taxes, GST in particular, remains a serious worry. Already 62 percent of the taxes come from indirect sources and the new arrangement will further aggravate this situation. It is worrisome that the type of restructuring that is needed in our tax system is not being done.
We are afraid expansion of an indirect tax will have devastating effects on the people and the economy. I also very strongly opposed the whole concept of one rate system of Sales Tax. I have strongly pleaded for two or three tax rates differentiating between essential commodities and others.
He said that we also have raised the issue of inflationary effects of the new changes in the sales tax particularly the removal of some 700 items from the Exemption List and bringing in of five major sectors of the economy into sales tax regime in one go. This is going to unleash inflationary forces in a country where people are already totally broke under the pressure of high prices.
We had given positive suggestions about mobilisation of fresh avenues for taxation particularly, targeting the wealthy classes and sectors, which have escaped tax during the last six decades. Drastic austerity measures and Expenditure cuts have also not been pursued by the Government. We are sorry to say that Government has opted for an easy course of taxation affecting all and sundry in the name of flood charges and has not touched those vested interests and elite classes who have failed to make their contribution towards augmenting state resources to meet genuine needs of the people and the country. What is needed is a total paradigm-shift - a direction in which the present government does not seem to have any intention or vision to move, destining note of Senator Professor Khurshid Ahmed added.
Senator Haroon Khan's note of dissent reiterated that all agriculture income must be taxed in the same manner as other income in the country. As this is a provincial subject, provincial legislation should be passed enabling the Provincial Governments to impose income tax on agriculture income in the same manner as they have to pass legislation to impose general sales tax on services. Until the provinces have established a mechanism to collect tax on Agricultural Income the responsibility can be passed on to the Federal Government, as is being done by at least three provinces for the collection of GST on services. This can generate revenue in excess of Rs 100 Billion. Not only will it generate much needed revenues it will document the entire agriculture economy in the country.
Legislation must be introduced to protect the farm workers by giving them the protection of minimum wages, social security and health insurance benefits. We saw the misery and agony of the farm labour during the recent devastating floods. It is ironic that the benefits of the prosperity generated in the rural areas due to astronomically high food commodity prices like the price of cotton, sugarcane, maize, rice, etc, could not be passed on to the farm labour, Senator Haroon Khan's note of dissent added.
Senator Ilyas Bilour, reiterating his principle position gave a note of dissent stating that his recommendation of taxing agriculture income has not been accepted. Senator Ahmed Ali in his note of dissent said that zero rated regime for textile exporters should be maintained and one time agriculture income tax should be imposed by the provinces as it is a provincial subject under the Constitution.
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