State Bank of Pakistan (SBP) has proposed Ministry of Finance/Federal Board of Revenue (FBR) to form an effective formal mechanism for consultation among provinces to bring harmony in sales tax applicable to banking services. It is learnt that the SBP has submitted budget proposals for 2015-16 to the Finance Ministry.
According to the SBP, a number of services are taxed at different rates at different provinces, which creates confusion for the customers. Also, banks' systems are largely centralized that create additional hardship for banks to implement and monitor different rules for different provinces.
The SBP said provinces were now making their own sales tax laws. "There are number of differences among provinces which are resulting in being taxed differently in provinces. Examples are services provided in one province from another province is treated as provided by a non-resident person and both provinces charge sales tax. Secondly, general rate of sales tax on services for Sindh & KP is 15 percent. For Punjab, Balochistan and Islamabad it is 16 percent. For certain services Sindh & KP have also introduced lower rates (5 percent & 10 percent), and for Punjab, Balochistan & Islamabad these are 16 percent.
The scope of taxable services is also not same, like services for legal practitioners and consultants, accountants and auditors etc are taxable in Sindh & KP, however not taxable in Punjab, Balochistan and Islamabad. Services for utility bills collection, Hajj, Umrah, Cheque Books Issuance, Cheque Return Charges, insurance services by banking companies are exempt under Sindh. Cheque return charges and insurance services are not exempt, and for Punjab & KP, no exemption is available.
The Ministry of Finance / FBR should form an effective formal mechanism for consultation among provinces to bring harmony in sales tax applicable to banking services. Complete harmony is required among the federal and provincial sales tax laws to relieve taxpayers from undue hassles and unwarranted litigation with tax authorities.
The SBP said banks were operating all over Pakistan and, as a policy, had a uniform fee for Customers originating from all provinces. Since a number of services are taxed at different rates at different provinces, this creates confusion for the customers. Also, since banks' systems are largely centralized, this creates additional hardship for banks to implement and monitor different rules for different provinces. This is forcing the banks to go away from system and implement manual procedures to cater to such anomalies.
The SBP has further proposed Ministry of Finance to provide level playing field for all corporate entities, including the banking sector in the upcoming budget (2015-16). According to the SBP, the corporate tax rate has been reduced from 35 percent to 33 percent for companies and this is projected to reduce by one percent each year to reach 30 percent. However, this consideration has not been extended to banking companies. The same provisions should be made applicable to banks
This has resulted in discriminatory treatment against one of the highest contributing sectors of the country. SBP has proposed that that there should be a level playing field for all corporate entities, including the banking sector. This is particularly relevant as, in today's economy, the divide between banks and other entities servicing the financial sector (NBF1s, Telcos) is blurring.