ISLAMABAD: The Federal Board of Revenue (FBR) has estimated a revenue loss of approximately Rs1 trillion in its tax collection, if the FBR accepts the stance of the provincial revenue authorities on disputed areas of sales tax collection on goods and services including restaurants, transportation of petroleum products, toll manufacturing, and the construction business.
Sources told Business Recorder here on Wednesday that the FBR had made this claim during the last meeting of the Executive Committee of the National Tax Council (NTC), which was held last month in the Finance Division, Islamabad, to review progress on the GST harmonisation. The Executive Committee of the NTC decided to constitute a Technical Committee representing the FBR and the provincial revenue authorities to study and settle disputes in the gray areas.
During the meeting, the FBR Member IR Operations informed that the FBR had worked out that if we accept the stance of the provincial revenue authorities on these disputed areas, the FBR would lose approximately one trillion in revenue generation.
The revenue generated by the FBR is ultimately shared between the federation and the provinces under the NFC Award.
If the FBR transfers this right to the provinces, it will severely hit the shares of smaller federating units due to the non-availability of sufficient business activities.
The chairman Sindh Revenue Board (SRB) had proposed that a Technical Committee may be constituted to study and settle disputes, on the issues discussed in the meeting. This will be a relevant and useful forum.
The meeting unanimously agreed with the proposal and a Technical Committee comprising the following was constituted to study and settle disputes in the gray areas discussed in the meeting within the timeframe of one month: Aamer Amin Bhatti, chief ST (Operations), FBR; Zainul Abdin Sahi, chairperson PRA Punjab; Syed Mushtaque Kazmi, senior advisor SRB, Sindh; Iftikhar Qutub, advisor KPRA, and Naseebullah Umrani, member Operations BRA, Balochistan.
The special secretary, Finance Division, comforted the federating units that the federal government will not deviate from the relevant laws, rules as well as the Memorandum of Agreement signed by the federal and the provincial governments.
He, however, regretfully pointed out that despite holding three meetings of the Executive Committee, and a number of meetings by the Technical Committee, no consensus were developed on the definitions of "goods" and "services".
He suggested that instead, we may in the first instance, identify the gray areas, and try to develop agreement on them.
The consensus, so developed, will help in developing the mutually-agreed definitions. The decisions on the gray areas will be incorporated in the GST laws along with the definitions by the federation and federating units.
He stated that as discussed with the FBR, following are the main gray areas of sales tax on goods and services: (i) restaurants, (ii) transportation of petroleum products, (iii) toll manufacturing, and (iv) the construction business.
The chairman of the Executive Committee of the NTC requested the views of the FBR and revenue authorities of the provinces regarding collection of sales tax on restaurants. The FBR Member IR Operations stated that the harmonisation of the GST is unique to Indo-Pakistan, where the federal and the provincial governments have been assigned collection of the GST on goods and services, respectively.
In Pakistan, sales tax on goods has been assigned to the federal government and the provinces are collecting the GST on services.
In India, the situation is vice versa i.e. the collection of sales tax on services has been assigned to the federal government and that on goods to the state governments.
In the rest of the world, there is no distinction of goods and services.
On the issue of toll manufacturing, the special secretary finance observed that the arguments given by both the FBR and the provincial revenue authorities are important and merit further consideration.
The special secretary, Finance Division, then took up the issue of the construction business, and invited the views of the stakeholders.
The chairperson Punjab Revenue Authority informed that provinces are collecting the GST on construction business.
The FBR Member IR Policy informed that the FBR can start collection of sales tax on construction business anytime, because it includes goods as dominant component in the activity.
The special secretary, Finance Division, stated that for them, the real incentive was to improve ease of doing business in Pakistan to capitalise on the full potential of the industrial activities.
The GST harmonisation is critical for good governance, and a conducive business environment.
Copyright Business Recorder, 2021
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