Single value-added tax

Reports indicate that the Medium Term Economic Framework (METF) proposes a single value-added tax (VAT) for goods and services - 17 percent. While VAT for goods is a federal tax and hence collected by the Federal Board of Revenue (FBR), the VAT on services is a provincial subject. Previous to the PPP-led coalition government (2008-13) sales tax on services was collected by the FBR on behalf of the provinces for a nominal fee and the collections transferred to the federal consolidated fund for onward transmission to each province according to its specified share. Sindh's legitimate concern was that while a significant portion of the tax on services was being collected from Karachi yet the share of the province from the consolidated fund was determined by the NFC award where Punjab took the lion's share.
The Sindh government took a lead in levying and collecting sales tax on services subsequent to the passage of the 18th Amendment (specifically in relation to item No. 49 of Part A of the Fourth Schedule thereof) and pursuant to Articles 8 and 9(2) of the 7th National Finance Commission Award, notified in 2010, by enacting Sindh Revenue Board Act, 2010. The Sindh Sales Tax on Service Act was passed in 2011 and became effective from 1 July 2011 "for the levy and collection of Sindh Sales Tax on the services provided or rendered." The Sindh government has steadily raised its revenue generation from sales tax on services in particular. Punjab Revenue Authority was established a year later in 2012, Khyber Pakhtunkhwa Revenue Authority was established in 2013 and Balochistan Revenue Authority was established in 2015.
SRB has been the most successful in generating resources under the sales tax on services followed by PRA, KPRA and BRA as expected given the services sector in the four provinces. However, the levy of sales tax is different in different provinces and the METF has proposed the same tax on services as on goods - 17 percent. At present, Sindh imposes a 13 percent tax on services, while Punjab imposes a 16 percent tax on services. At this point it is unclear whether the federal government would be able to convince Sindh to follow suit especially given the recent spate of verbal attacks by the federal and the Sindh administrations' leadership.
Additionally, the MTEF envisages a single tax authority for purposes of filing returns (unfortunately while the need for rationalization between the provincial tax collecting authorities and the FBR has been recognized almost since the provinces established them yet rationalization remains a challenge) as well as for the purpose of refunds.
In addition, the MTEF proposed some standard normal IMF conditions including removal of exemptions and excessive tax credits from income tax, sales tax and federal excise duty. Amnesty scheme yet to be approved by the cabinet was also a proposed feature of the MTEF as a source of revenue though it is unclear whether it would be accepted by the cabinet in its present form (with some members of the cabinet reportedly arguing against the high rates proposed) or amended and whether the International Monetary Fund (IMF) would accept it as it has been critical of previous amnesty schemes and maintained in one of its quarterly reports under the Extended Fund Facility that these schemes, "open another loophole in the system in addition to the ones that already exist for remittances and equity stock investment and raises potential of money laundering risks. The immunity from routine audit hinders the self-assessment process and the amnesty - entailed by waiving penalties and interest - is likely to be detrimental to improving compliance and collections as taxpayers will develop the expectation of future immunities."
The objective of the MTEF was to convince the (IMF) that these measures would raise revenue to the level required under the yet to be signed three-year bailout package. As per reports, the MTEF envisaged an additional revenue effort of about 2.6 percent of GDP over a period of three years: 1.1 percent of GDP next year, 0.9 percent in 2020-21 and 0.3 percent in 2021-22. However, there is many a slip between the cup and the lip with respect to the acceptability of the MTEF proposals within the country as well as by the IMF.