The Federal Finance Ministry is trying to reopen the issue of collection of sales tax on services, which was settled in the 7th NFC award. This was stated by Dr Kaiser Bengali, Sindh's member in National Finance Commission (NFC), while addressing a press conference at the Karachi Press Club here on Wednesday.
Dr Bengali said that the matter had again been placed in the agenda of the upcoming 8th NFC award meeting for deliberation. He said that if it (Finance Ministry) wanted to reopen the issue of collection of sales tax on services, it meant that the Sindh government had to close the Sindh Revenue Board (SRB).
The historic 7th NFC award was signed by the federation and all the provinces at Gawadar on December 30, 2009, he said adding that from Sindh's perspective, the major gain in the award was collection of ST on Services by the provinces. Accordingly, Dr Bengali said the Sindh Assembly passed the Sindh Sales Tax on Services Act 2011, and established its own tax collection body with the name of Sindh Revenue Board.
He said that the 8th NFC had been constituted and its first meeting was to be held on November 21, 2011, which has been postponed. Bengali said that the second item on the agenda of the 8th NFC meeting was a matter of great concern. "It states that imposition of GST on Services in an integrated mode and ancillary issue of its mode of distribution among the provinces".
The accompanying Position Paper relating to Agenda Item 2 recommends that "in order to implement reforms in GST it is necessary that collection authority for both GST on Services and Goods be assigned to same agency that in turn would be able to provide input/output adjustments."
Dr Bengali said that the first draft of the Presidential Order submitted to President Asif Ali Zardari for his signature omitted Clause 12 of the award, relating to collection of ST on Services by provinces. "It took Sindh's Chief Minister Syed Qaim Ali Shah and me over three months of intensive efforts for the rectified Presidential Order to be issued again," he added.
Dr Bengali said that after the promulgation of the rectified Presidential Order in May 2010, the Finance Ministry put forth the position that VAT or RGST required GST on goods as well as services to be collected by one agency. Dr Bengali added that during the long-drawn-out and difficult negotiations, he managed to convince the Finance Ministry that what actually did the VAT mode require, was not unified collection, but unified input-output adjustment and showed that separate collection and unified input-output adjustment was possible to be implemented.
"Collection of Sales Tax on Services by SRB since July 2011, and smooth execution of input-output adjustment in collaboration with the FBR has proved that the task is operationally successful. Thus, there is no justification to revert the decision," he said.
Dr Bengali said that it would be appropriate if the Finance Ministry did not reopen the settled issues and implement the decisions of the 7th NFC. He suggested that, the Finance Ministry needed to withdraw Federal Excise Duty on Services, except on items stated in entry 53 of the Federal Legislative List of the Constitution. "While, the FBR's website states that FED has been withdrawn, the necessary notification has yet not been issued. Withdrawal of FED is essential to ensure that taxpayers are not subjected to double taxation and SRB is able to perform its task efficiently," he said.
To a question, he said that currently, Pakistan was not working under the IMF's programme so it would not be appropriate to say that collection of ST on Services by one agency was a condition imposed by the IMF. To another question, Dr Bengali said that Sindh had settled all the issues with the federal government through negotiations and it would not boycott any meeting regarding the 8th NFC award but it would try its best to convince the federal government not to reopen the settled issues.
"Chief Minister Syed Qaim Ali Shah has already written a letter to Prime Minister Syed Yousuf Raza Gilani in this regard and positive result is expected," he hoped. To a question, he claimed that all allies of the Sindh government were on the same page over the issue of collection of SToS.
Talking about the performance of SRB, he said that the performance of SRB had, over the last five months, been exemplary. It has collected over Rs 9 billion since July to November 2011, with an average of Rs 1.85 billion per month, which is 50 percent more than what FBR transferred to Sindh over the previous year 2010-11.
He said that SRB's collection was certain to improve further, after existing legal and administrative bottlenecks were removed. This accomplishment has proved skeptics wrong, who had been claiming that Sindh does not have the capacity to collect taxes. Dr Bengali said that SRB had collected over Rs 9 billion with the staff of about 50 while, FBR had more than 33,000 employees.
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