ISLAMABAD: In a major development on harmonization of sales tax between federation and provinces, the National Tax Council (NTC) has directed the Federal Board of Revenue (FBR) to review the revised definitions of "Goods" and "Services" in line with the unanimous definitions agreed among provincial revenue authorities.

Sources told Business Recorder that the decision was taken during the last meeting of the Executive Committee of the National Tax Council (NTC) held at the Finance Division to review the deliberations of the Technical Committee of the NTC.

AFS (IF/IGF) Finance Division welcomed the participants and introduced the agenda of the meeting. He stated that the meeting of the Technical Committee was held at the FBR wherein the provincial revenue authorities presented their unanimously agreed definitions of goods and services. It was agreed in the said meeting that the FBR would make necessary changes as agreed and share the draft with all participants for further course of action. He requested FBR Member Inland Revenue (Policy) to update the participants in this regard.

FBR Member IR Policy stated that the FBR has redrafted the definitions of goods and services in the light of the draft unanimously agreed definitions of the provinces. He circulated the copies of the draft definitions amongst the participants of the meeting. A copy of the said definition was also emailed to participants on Zoom from KP and Sindh. He also briefed the participants about the pros and cons of their version of definitions. The chair then invited comments of provinces on the definitions presented by the FBR.

Finance Secretary Khyber Pakhunkhwa pointed out with this revised version of definitions, it appeared that the position of the FBR was the same as was its original position. There was no change in the stance of FBR in the revised definitions despite the fact the provinces had unanimously agreed on common definitions of goods and services.

Advisor KPRA stated that the international best practice i.e. UNO codification system may be adopted for deciding the issue of common definitions. He further stated that provinces may be given time for their conclusive opinion on the revised definition of goods and services.

Finance Secretary Balochistan stated that the problem was in the explanation of definition presented by the FBR. Through this definition, the FBR can encroach on all services except those which are 100 percent goods free i.e. services rendered by engineers, doctors etc. The Technical Committee may evolve consensus on the definitions.

Senior Adviser Sindh Revenue Board (SRB) presented legal facts that it was mentioned in the Memorandum of Understanding on GST harmonization signed by the Finance Minister Sindh that the terminology 'goods' may be defined as the articles specified in Chapter 1-97 of the Pakistan Customs Tariff in the First Schedule to the Customs Act 1969. Other economic activities, not covered by such definitions of 'good' be treated as 'services'. These definitions have been framed by the World Customs Organization, rectified by the government of Pakistan and included in the Customs Act. He further stated that the FBR may review the unanimous definitions agreed by the provinces and the provinces would also review the revised definitions of FBR to present their conclusive opinion.

FBR Member Inland Revenue operations stated that the world was adopting consolidation model of fiscal base instead of fragmentation model and discouraging tax collection by more than one agency. Revenue collected by the FBR, is reported to Finance Division foreightly, for distribution between the federating units under the NFC Award. We will reconsider the FBR's definitions keeping in view the data, FBR Member added.

Chairperson Punjab Revenue Authority (PRA), stated that the revenue collected by the federation and provinces is spent on the nation. All stakeholders need a solution for smooth collection of revenue. For tax collection, provinces are not on negative list, rather they are on positive list. Basic principles regarding GST harmonization has already been agreed in the Memorandum of Agreement signed by the Federal and Provincial Finance Ministers. Therefore, the indicative active list is to be decided by the Executive Committee for approval from the National Tax Council. The common definitions agreed between the federation and provinces will be part of the laws.

Additional Secretary (IGF) concluded that the GST harmonization across the country would bring about efficiencies in revenues collection besides enhancing ease of doing business, therefore, we all must strive to resolve this issue without any delay.

The participants agreed on the following: One, provinces will hold consultations amongst themselves on the revised definition drafted by the FBR and give their conclusive opinion.

Two, FBR will review the revised definitions considering the points raised by the provinces.

Three, the said tasks may be finalized in the next 7-10 days to move forward on the matter of harmonization of GST.

Copyright Business Recorder, 2020