The Federal Board of Revenue (FBR) will workout the exact impact of sales tax from services sector on the over ambitious revenue collection target of Rs 1,952 billion for 2011-2012. It is learnt here on Monday that the FBR would exactly determine the impact of sales tax on services sector after resolution of all services related issues between the federation and the provinces. The issue came to the light during a meeting at the FBR on July 30, 2011, on current position of taxes.
The meeting was chaired by FBR Chairman Salman Siddiqui and attended by all FBR Members. The tax managers discussed the issue relating to collection of sales tax on services and its possible impact on the revenue collection target of Rs 1,952 billion for 2011-2012. It has been brought to the notice of the Board that the transfer of certain services from federation to the provinces would have revenue impact on the sales tax collection of the FBR.
Once all provinces started collecting sales tax on services as per agreed mechanism, the federal tax authorities will be in a better position to workout the revenue implications of services sector on FBR's collection. It would be examined whether there is a need to revise the annual revenue collection target of Rs 1,952 billion set for 2011-2012 due to revenue impact of services sector.
In this regard, the accounting procedure to collect sales tax on telecom services was also discussed as per 'Record Note' agreed between the federation and provinces. In case of telecom service, the FBR will directly credit the amount of sales tax to the relevant account of provinces.
At the same time, the FBR will be able to exactly determine sales tax impact from services sector following collection of the same as per 'Record Note' agreed between the federation and provinces on collection of sales tax on services. The sales tax would be collected as per 'Record Note' agreed between the federation and provinces.
One of the possibilities is the reduction in the annual revenue collection target of Rs 1,952 billion of 2011-2012, if required. This depends on the working of FBR regarding the impact of sales tax on overall collection from the services sectors in future. However, the working would be done once the position is clear on collection of sales tax from each service particularly telecommunication.
During the last meeting between the federation and all the four provinces, it was agreed to apply a uniform rate of 19.5 percent sales tax on telecommunication services. The federal government and provinces including Sindh have agreed to introduce a single rate of 19.5 percent on telecom services to remove ambiguity or distortions in tax collection from telecom sector. Punjab, Khyber-Pakhtunkhwa and Balochistan have to amend their respective ordinances or issue notifications for introducing a uniform rate of 19.5 percent sales tax on telecom services. The services involving input tax adjustment would be identified for proper collection of sales tax from services sector. Sindh province would also authorise the FBR to collect sales tax on financial services that is banking, insurance, advertising services, construction services and franchise services.