'The State of Pakistan's Economy' reports: SBP questioned over 'factual errors'

There are a host of factual errors and oversights relating to provincial revenues in the central bank's State of Economy report 2018-19, contends the Sindh Revenue Board (SRB). The SRB maintains that these errors paint a poor picture of provincial tax authorities, and accordingly it has asked the central bank to review its observations, analysis and recommendations for provincial tax receipts.

In section 4.5 of the said report, the central bank writes: "In contrast, the provincial tax revenues grew by a meagre 0.1 percent during FY19 as compared to 24.7 percent increase recorded last year.

This stagnation was explained by a sharp 9.4 percent decline in collections from General Sales Tax on Services (GSTS), which more than offset healthy collections against stamp duties, property taxes, excise duties and other sources. The decline in GSTS probably stemmed from an overall deceleration in the services sector growth during the year."

The Sindh government recognises the fact that growth in the collection of GSTS in FY19 was poor (FY19: 1.34%) but it attributes the decline in the pace of growth to the suspension of the levy and the collection of sales tax on cellular mobile phone services under the Supreme Court's interim orders (operative from 12 June 2018 to 24 April 2019) in Suo-Moto Human Rights Case No. 18877 of 2018.

In its letter to the central bank, the Sindh government also points to the final judgement of the Supreme Court (delivered on May 10 2019) in which the apex court disallowed the recovery of the GSTS for the period of suspension on the premise that telecom companies had simply implemented the order of the court, and "it would be unfair and unjust" to demand that the cellular telecom companies make good the loss of the said taxes.

The Sindh government maintains that had the suspension order not been enforced, its GSTS collection would have continued in line with its historical growth trend.

In addition to this glaring factual oversight by the central bank, the Sindh government also contests the claims made by the central bank by way stating in its FY19 the State of the Pakistan's Economy report that the "provincial governments have failed to put up a workable strategy to improve collection". The Sindh government claims that provincial taxes as percentage of total taxes have increased from 3.8 percent in FY11 to 9 percent in FY19.

The Sindh government has also challenged the central bank's claim that provinces contribute negligibly to tax collection despite having the jurisdiction to tax agriculture and services sectors that have combined share of 74.4 percent share in Pakistan's GDP as of FY19.

It argues that three of the sub-sectors of Pakistan's service sector GDP are outrightly outside of the scope of provincial taxation on account of different laws and constitutional provisions, whereas two other sectors are only partially within the scope of provincial taxation. As a result, "only 15.2 percent of the GDP (and not 57% of the GDP) is available for the provinces to levy sales tax on services".

This is not the first time when the central bank's the State of Pakistan's Economy reports have needed "correction and revision".

The document seen by Business Recorder reveals that the Sindh Revenue Board (SRB) has on earlier occasions underscored the need for making corrections in various quarterly and annual reports on the state of Pakistan's economy; and has also requested the central bank to consult the SRB and other provincial sales tax authorities before developing a narrative on provincial fiscal affairs.

These have been duly acknowledged by the central bank twice, once in April 2014 and later in January 2017. However, according to the document SRB maintains, the SBP still doesn't approach the SRB despite having agreed to liaise with it on earlier occasions.