The National Finance Commission (NFC) Monitoring Committee Thursday approved the National Tax Council's composition and its terms of references (ToRs), which would enable the federation and provinces to decide uniform rate of sales tax for both goods and services through harmonization of taxes.
Adviser to the Prime Minister on Finance and Revenue, Dr Abdul Hafeez Shaikh chaired the meeting of the NFC Monitoring Committee here. Finance Ministers of Khyber-Pakhtunkhwa and Balochistan were also there, while Punjab and Sindh were represented by their finance secretaries.
The meeting was convened to seek approval of the bi-annual report on the implementation of the NFC Award for the periods of July-December 2018 and January-June 2019, and the establishment of the NTC. During the meeting, suggestions were presented for sales tax harmonization in the country.
Pursuant to the decision of the CCI dated 24th November 2017, the framing of ToRs of the Fiscal Coordination Committee (FCC) was assigned to the NFC Monitoring Committee. The said ToRs were framed and approved in meeting.
The terms of reference state the FCC shall review and discuss the fiscal policy issues of the federal and provincial governments and suggest solutions. It will monitor current and development expenditures of the federal and provincial governments.
The discussion on issues related to the FBR receipts will also fall under the ambit of this committee. The review of the debt stock of the federal and provincial governments in the perspective of the FRDL Act, discussion on the position of provinces' own receipts and suggestion of measures for enhancement of provincial revenues, and the review of cash balances of the federal and provincial governments, are also assigned to the committee.
The composition of the NTC and its proposed ToRs were approved in the meeting. The provinces are represented in the NTC and it will enable them to decide collectively the rate for sales tax for both goods and services. It was proposed during the meeting that the NTC would meet at least once in every quarter, and the recommendations of the NTC would be expressed in terms of majority and would be placed before the NFC Monitoring Committee.
The World Bank has reportedly delayed the approval of two budgetary support loans worth $750 million due to lack of progress on some of the agreed prior conditions, including disagreement among provinces over harmonisation of the general sales tax (GST) on services. There was disagreement among the provinces over the collected GST and its distribution formula.
Punjab demanded that the destination of a service should be the base for determining a province's share, while Sindh was pressing the case for the origin of service, said the sources.
The NTC would approve the structure of a harmonised GST, the official added. The WB Country Director to Pakistan in December with media interaction stated that the framework for harmonization of the GST among federation and provinces is being prepared and would be placed before the Council of Common Interest (CCI) to make the system easy for the private business to comply with.
Talking about the $400 million Pakistan Raises Revenue (PRR) project, the WB official said that it was critical to implement harmonization of the GST among the federating units and the federation. The WB was proposing a single law, which decides about the single principle of taxation, supply rules and rate.
So the wholesale tax base on services and goods should be harmonized in principle and practically, which would facilitate compliance of private businesses. He added that harmonization of tax system would benefit the country, by reducing informality in the tax system, and getting more people into the tax system, while double taxation would be avoided.
The reports, which were approved by the NFC Monitoring Committee would be presented in the national and provincial assemblies under the requirements of the Article 160(3B) of the Constitution. The bi-annual reports contain the information on distribution of revenues and grants in aid to the provinces under the NFC Award announced in 2010 (7th NFC Award).
The report also contained the inputs from the provinces. The reports were endorsed by the provinces. The Bi-Annual Report of period July-December (FY 2018-2019) stated that out of the FBR's divisible pool collection of Rs1,949.752 billion, Rs1,121.207 billion was the provincial share.
Punjab had Rs580.061 billion, Sindh Rs275.232 billion, KP Rs163.906 billion, and Balochistan got Rs101.909 billion. In addition to these transfers, KP received 1 percent as war on terror fund of Rs19.694 billion, Balochistan additionally Rs10.149 billion, and Sindh OZT grant Rs7.399 billion.
Straight transfers for the period were Rs48.225 billion. In addition to the divisible pool funds, Rs19.708 billion were given to KP for WoT, Balochistan additionally received Rs10.079 billion and Sindh got OZT grant of Rs7.404 billion.
Straight transfers of Rs46.826 billion were also made to the provinces during the period under four heads of royalty on crude oil, royalty on natural gas, gas development surcharge, and excise duty on natural gas.
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