Centre, provinces to apply uniform rate of 19.5 percent: GST on telecom services from August 1

The federation and all the four provinces have agreed to apply a uniform rate of 19.5 percent sales tax on telecommunication services from August 1, 2011 for which amendments would be introduced in provincial laws in next 10-15 days. Sources told Business Recorder on Monday that the decision was taken at the meeting of provincial finance secretaries, chaired by Federal Finance Secretary Dr Waqar Masood at the Finance Ministry.
FBR Chairman Salman Siddiq was also present in the meeting. According to sources, the federal government and provinces including Sindh have agreed to introduce a single rate of 19.5 percent on telecom services to remove ambiguity or distortions in tax collection from telecom sector. At present, Punjab, Khyber Pakhtoonkhwa and Balochistan had proposed 16 percent sales tax on services including telecom. These provinces have to amend their respective ordinances or issue notifications for introducing a uniform rate of 19.5 percent sales tax on telecom services.
The meeting also decided that services involving input tax adjustment would be identified for proper collection of sales tax from services sector. In the meantime, the FBR will continue to collect Federal Excise Duty in Value Added Tax (VAT) mode on telecom sector during July 2011. From August 1, 2011, a single rate of 19.5 percent would be applicable on telecom services.
The FBR will not exclude telecom services from the excisable schedule of the Federal Excise Act 2005 for the month of July 2011. During July the FBR will continue to collect the FED in VAT mode on telecom services. The notification for deletion of excisable services from the Federal Excise Act would be issued in next few days. Sources said that the Sindh would also authorize the FBR to collect sales tax on financial services including banking, insurance, advertising services, construction services and franchising services. The delay in issuance of notification by Sindh is due to abovesaid telecom issue.
Legally, the FBR has to first withdraw the FED in VAT mode on services and than Sindh would issue a notification to delegate powers to the FBR for collection of sales tax on five services. When contacted, an official of Sindh government said that there are many services, which involve input tax adjustment. The Sindh province is legally empowered to collect the sales tax on these services involving small amount of adjustments.
Under the ''Sindh Sales Tax on Services Act, 2011'', Sindh Revenue Board (SRB) is legally empowered to collect sales tax services mentioned in the taxable schedule of the said Act. Except five services, the Sindh should be allowed to collect sales tax on those services, which involve input tax adjustment, which would allow the province to practically experience the whole process of collection of sales tax on services.
The experiment of collection of sales tax on services by the province has already been delayed for the last one year. The FBR and the Sindh government can easily do accounting procedure/reconciliation of data for determination of the input tax adjustment. The taxpayers should not be denied the right for claming input tax adjustment.
Even if other services except banking, insurance, advertising services, construction services and franchise, involve input tax adjustment, Sindh be allowed to collect sales tax on these services as per Taxable Schedule of ''Sindh Sales Tax on Services Act, 2011''.
Responding to a query, official of Sindh government said that if the FBR has drafted a notification, which has mentioned "Other Services" for authorisation to the FBR for collection of sales tax on other services, it would allow the FBR to expand its list of services. This means that the FBR can include any other service in the name of input tax adjustment for collection of sales tax by the federal government. If such kind of provision has been introduced in any draft notification, it should be deleted and Sindh would authorize the FBR to collect sales tax on banking, insurance, advertising services, construction services and franchising services.
Any column mentioning "Other Services" would only allow the FBR to collect sales tax on any other services, which involves even small amount of tax adjustment. The FBR should delete should kind of column, if drafted in the notification which would delegate powers to the FBR for collection of sales tax on five services. The notification of delegation of powers to the FBR to collect sales tax on services should not have such column of "Other Services" which would later allow the Board to collect sales tax on many services.