Sales tax on inter-city transportation services would increase the cost of distribution which would create immense pressure on Oil and Gas Regulatory Authority (OGRA) to increase the price of petroleum products. According to a report, 'levy of sales tax on inter-city transportation services' prepared by Member Tax Reform Commission (TRC) Ashfaq Tola, who is also Editor in Chief of Tax-Pak a newsletter of Tola Associates, sales tax on inter-city transportation services is against the policy of the government to curb inflation.
The report prepared by Ashfaq Tola opined that Sindh Government, vide its Circular No 07/2017 dated November 01, 2017, has restrained the Sindh Revenue Board (SRB) to collect sales tax from inter-city transportation or carriage by road or through conduit or pipeline till December 31, 2017.
It is pertinent to note that after the 18th amendment in the Constitution, the Provincial Governments have started collection of sales tax on service through their respective statutes and as to date all the four Provinces have enacted their respective statutes.
Sindh was the pioneer to enact Sindh Sales Tax on Services Act, 2011 followed by Punjab Sales Tax on Services Act, 2012, KPK Finance Act, 2013, Balochistan Sales Tax on Services Act, 2014 in the Provinces of Punjab, Khyber Pakhtunkhwa and Balochistan respectively. Through Finance Act, 2015, the Federal Government had also substantially enhanced the list of taxable service by amending Islamabad Capital Territory (Tax on Services) Ordinance, 2001. The Sindh Government in 2014 imposed sales tax on services of inter-city Transportation.
Ashfaq Tola's report was of the view that both the transportation service providers specially Oil Tanker Contractor Association of Pakistan and the local community strongly rejected imposition of sales tax on transportation services and recorded many protest and strikes against this new sales tax.
Surprisingly, the Government of Punjab and Government of Balochistan copied the Government of Sindh and introduced this new tax in Punjab and Balochistan. However, to date none of the Provincial Governments have been able to collect sales tax on transportation services due to its complex nature and incapacity of the service provider to understand and pay this new tax.
It said that the largest mode of distribution of petroleum products in the country through road transportation. Sales tax on inter-city transportation services would increase the cost of distribution which would create immense pressure on Oil and Gas Regulatory Authority to increase the price of petroleum products which is the main factor for controlling inflation in the country. Hence, sales tax on inter-city transportation services is against the policy of the Government to curb inflation.
Sales tax on inter-city transportation in Punjab, Sindh and Balochistan would substantially increase the cost of agriculture produce in the hands of farmers. For example the cost of fertilizer, urea and pesticides will likely increase with this new levy which would demolish the Federal Government efforts to provide subsidized fertilizer and other agricultural products. It's is practically impossible to make a formula for collection of sales tax and demarcation of transportation service cannot be made. For example a truck driver takes goods and starts its journey from Karachi, drops some goods in Multan and load other goods in available vacant space, then reach to Quetta for next journey to Faisalabad, Islamabad and Kashmir. No mechanism could be devised for collection of sales tax in aforesaid scenario which would open an era of dispute between the Provincial Governments and the Federal Government.
Almost all the transporters, transport companies or truck drivers are illiterate people and do not have the capacity to compute the sales tax and to abide by the law. Another bottleneck is the criteria of taxability of these services as Sindh and Punjab are divided in the issue whether the sales tax is to be charged on the basis of origination or destination of the journey, Ashfaq Tola's report added.