Sindh government has taken an initiative to consolidate efforts towards boosting the mechanism for tax-related revenue collection at the provincial level under the law. This initiative is in particular to address the grievances of the provinces with regard to their 'retrenched' share from the National Finance Commission (NFC). In this regard, Sindh Finance Department convened a high level meeting at the Sindh Finance Department on Monday.
This initiative was aimed at addressing the grievances of the provinces with regard to their 'retrenched' share from the National Finance Commission (NFC). The meeting discussed the pros and cons of the recommendations ahead of implementation on a draft report on "Devolved Vs Integrated Tax Structure - Evaluation of the Tax Collection Framework in Pakistan" - a study assigned to Sindh by the Sub-Committee of the 9th NFC on April 28, 2015.
This was the first meeting of the Working Groups constituted by the 9th NFC; it was held on Monday in the Sindh Finance Department. The meeting was attended by Murad Ali Shah, Senior Minister for Planning and Development (P&D), Finance and Energy,Muzafar Said, Finance Minister Khyber Pakhtunkhwa, SaleemMandviwalla, Technical Member NFC Sindh, Professor MuhammadIbraheem, Technical Member NFC Khyber Pakhtunkhwa, Dr Kaiser Bengali, Technical Member NFC Balochistan, Syed Anwar ul Hasan Bokhari, Secretary NFC, Ministry of Finance, Government of Pakistan, Dr Raheel Ahmed Siddiqui, Chairman Punjab Revenue Authority and Mushtaq Ahmed, Finance Secretary Balochistan, Sohail Rajput, Finance Secretary Sindh and other senior officers of Finance Department and Sindh Revenue Board.
The meeting was told that Sindh government has prepared its draft report on the task assigned and circulated it to federal and provincial governments for their feedback. The report highlights the issues related to collection of general sales tax (GST) on goods by provinces instead of the federal government, sales tax on services being collected by the federal government by declaring them as goods such as sales tax on goods collected on retailers, wholesalers and distribution services, sales tax on imported goods include insurance and freight, which are, in fact, services, and imports of services and FBR encroachment on provincial taxes that include withholding taxes on banking transactions and withholding tax on telecommunication services and other withholding taxes.
The report has while keeping the aforementioned deliberations on the collection of different taxes at the provincial level has several recommendations that read that the collection of sales tax on Goods should be assigned to provinces as the province transfers the amounts so collected to federal government, which in turn be distributed as per the spirit of the NFC Award.
The other recommendations carry a stress on the capacity and efficiency of the provinces for meeting the pre-set criterion with regard to collection of the assorted taxes. These include the proposal that since the experience of Sindh Revenue Board (SRB), Punjab Revenue Authority(PRA) and Khyber Pakhtunkhwa Revenue Authority (KPRA) shows that provinces are fully capable to manage cross-border transactions of services as well as goods, hence, the federal government may stop encroaching provincial tax domain by imposing withholding taxes such as imposition of withholding tax on automobile and telecommunication and enhancement of tax rate on rental income from property.
In support of this recommendation, the report stated that these federal measures have severely affected provincial motor vehicle tax, sales tax on telecommunication services and urban immovable property tax.
It further stated that the levy and collection of sales tax at the wholesale and retail stages and the distribution of energies like gas and electricity, which also forms a component of service GDP in Pakistan, should be devolved to the provinces. Another recommendation that validates the 'just reservations' of the provincial government stated that for the purpose of facilitating the transfer of sales tax at wholesale and retail stages, the federal system of excise taxation and sales taxation on the basis of retail prices should be discontinued forthwith; FBR should delete Table-II of the First Schedule to the Federal Excise Act, 2005 as all such services are subjected to provincial sales tax.
The meeting that had lasted for several hours with deep deliberations on each single aspect of the report discussed the recommendation in details and Punjab and Khyber Pakhtunkhwa governments strongly supported conferment of collection of sales tax on goods to provinces as the provinces are in better position to collect it along with sales tax on services. This proposal would bring sales tax collection regime under one authority and would increase revenues. Balochistan government would, however, convey its position on this recommendation in the next meeting.