The constitution of proposed Punjab Revenue Authority (PRA) would enable the provincial government to directly collect General Sales Tax (GST) on services, it is learnt on Friday. The Punjab government is expected to set up PRA on the pattern of Sindh Revenue Board (SRB), which has already started collection of GST on services.
In this connection, the draft bill of the PRA was reportedly submitted to the Law Department by the Punjab Finance Department for vetting. After getting the Chief Minister's consent note, the PRA Bill is expected to be sent to the provincial cabinet and tabled in the Provincial Assembly for legislation. The PRA will operate as an independent department, working under the Chief Minister and Chief Secretary, Punjab.
The functioning of PRA would have obvious implications on total tax collections of the Federal Board of Revenue (FBR) that, at present, collects the tax on behalf of the provinces, except Sindh. The FBR charges a collection fee of 2 percent.
Sources said that the FBR collected sales tax on behalf of the provinces and the amount collected was disbursed through the agreed National Finance Commission (NFC) formula. However, Sindh contended that, as per the Constitution, sales tax on services is the domain of the provinces and given that Sindh remains the largest contributor to total sales tax on services collected in the country, it would be financially beneficial for the province to collect the tax rather than to allow FBR to collect it and disburse the amount through an NFC formula.
With Punjab expected to follow Sindh's example, gross revenue collections of FBR will now decline to the extent of sales tax directly collected on services by Punjab and Sindh provinces. The share of provincial sales tax collection from Khyber Pakhtunkhwa (KPK) and Balochistan is quite insignificant due to lacklustre business activities and law and order situation.
A tax expert was of the view that theoretically speaking there should be no effect on the net revenue collection of the FBR following collection of sales tax by the PRA. He clarified that FBR in principal was only acting as collecting agent on behalf of the provinces, the amount collected is reimbursed, therefore, there was no reason for any negative impact on total revenue collections. Furthermore, directly collecting sales tax may improve enforcement and the provinces may generate positive results as the precise focus and mobilisation on sales tax collection on services by provinces would create opportunities to generate additional revenue resources.
The expert however agreed that it would be interesting to see how the federal government tackles issues of inter provincial tax adjustment, revenue involved on goods adjustment by service providers etc as no official modalities have yet been worked out by SRB and FBR on the issue of input tax adjustment of goods against service providers.