An agreement at last

It has been reported exclusively by Business Recorder that there has been a breakthrough between the Federal Board of Revenue (FBR) and the Sindh Revenue Board (SRB) in the long simmering dispute over who would collect sales tax in the province.
The Sindh government is expected to give its consent letter to the FBR to collect sales tax on telecommunications, banking services, insurance, stock market operations, advertising and construction services effective July 1, 2011. The tax collected on telecommunications would be 19.5 percent to avoid ambiguity between provinces, given that Khyber Pakhtunkhwa increased the sales tax on telecommunications from 16 to 19.5 percent. The remaining two provinces are expected to follow suit.
The sales tax collections are constitutionally the prerogative of the province as per Article 163 which states that "a provincial assembly may by Act impose taxes, not exceeding such limits as may from time to time be fixed by an Act of the Parliament, on persons engaged in professions, trades, callings or employments and no such Act of the Assembly shall be regarded as imposing a tax on income." Additionally, Chapter 98 of Customs Act provides a list of identified services (includes around 90-odd services) that maybe subjected to tax.
However, till the time the provinces had not imposed a sales tax, the federal government deemed it appropriate to levy a federal excise duty in the value-added mode, wherein tax paid was adjustable. In 2000, the provinces levied sales tax on five services leading to the correct FBR decision to withdraw the excise duty levied on these five services. Other services that were being taxed under the federal excise duty mode continued to pay the duty.
Contained in the first letter of intent submitted by the government to the International Monetary Fund board as a prerequisite for the approval of and thereby the release of the first tranche under the 7.6 billion dollar Stand-By Arrangement the government committed to the following: "The government will initiate a process to implement a full VAT with minimal exemptions, to be administered by the FBR. Draft legislation for the VAT is expected to be ready for public debate by end-2009.
The first program review will focus on the progress in developing the government's tax reform agenda". In pursuance of this commitment the government began to hold talks with the provincial governments as well as other stakeholders, though there was criticism that it failed to take the people of the country on board - or those who would eventually pay the tax as it would be passed onto them.
All provinces, excepting Sindh, opted to allow FBR to collect sales on services at one percent service fee. Given that Sindh has the highest estimated share of services output in the country, allowing the FBR to collect on its behalf, the Sindh government argued would imply losing its sales tax collections to other provinces. Sindh's reluctance thus stemmed from the fact that once the FBR collects a tax, it finds its way into the divisible pool with its specified percentage distribution formula, wherein Sindh's share is 24.55 percent.
Thence a stalemate had been evident till now. Additionally, the services sector was confused as both the Federal Excise Duty and the sales tax imposed by the provincial government on five service sectors were in place in July. Thus an agreement finally lays considerable disquiet amongst the payees of sales tax to rest. However, the details of the agreement have not yet been released. It is imperative for the government not only in the spirit of transparency but also in an effort to remove payees' feeling of strong anxiety, to release the details of the agreement.