It is unfortunate that the NTC (National Tax Council), which was mandated with harmonising GST (General Sales Tax) on both goods and services between the centre and provinces, will not be able to get the job done in time for the upcoming budget because of the lockdown necessitated by the coronavirus. The formation of the Council and subsequent harmonisation of GST is an essential requirement of the World Bank's budgetary support loan of $750-900 million as well as the IMF bailout programme that has also been put on hold because of the pandemic. According to its terms of reference, NTC will be responsible for sales tax harmonisation, agreement on a uniform GST rate on goods and services, a uniform portal, a uniform tax return form, and also settle the definition of goods and services. The objective, quite simply, is to facilitate taxpayers so they have to file a single return instead of separate returns for FBR and the provincial tax authority concerned every month and streamline the sales tax machinery. Yet even though the NTC has been established it has been unable to convene at all because matters like GST require lengthy deliberations between representatives from the centre as well as the provinces; something that is just not possible in times of pandemic. Now the best that can be expected is for things to improve enough for this business to be completed in time for the next fiscal year's budget.

According to the constitution of Pakistan, sales tax on services is the domain of the provinces, whereas sales tax on goods is the federal government's business. Each province also has its own sales tax law with regard to taxation on services at different rates. Then there are certain points of dispute between the provinces and the FBR regarding whether a particular transaction constitutes the sale of goods or service. Take the example of restaurants, where people pay for the food as well as the ambience. So should they be taxed for the goods or the service? Long before GST devolved to the provinces, the federation used to treat it as a service and imposed FED (Federal Excise Duty) instead of sales tax. But that, also, is not all. There are also points of dispute between the provinces themselves; chief among them being whether sale of service should be taxed on the basis of point of origin, or destination. These issues have persisted for so long that both the IMF, usually our lender of last resort, and World Bank, which finances development projects, have both made further aid contingent merging the two in the name of simplification for the tax payers. However, there are difficulties in the way and would require painstaking deliberations in good faith between the provinces and the federation. And it's not like these are issues that other countries, with the required will and purpose, have not already resolved. A good example comes from neighbour India, where the centre-state arrangement is quite the opposite. There, the union government has the authority to tax services while the states or provinces have the power to tax goods. They have come up with a system, called Modvat (modified value added tax), which combines the two heads, while another body has been constituted for distribution. Another very instructive example is the EU (European Union), where 28 sovereign states have been able to resolve such difficulties and adopt a unified VAT (Value Added Tax), even though individual tax rates are different in different countries. This is the direction in which the NTC is supposed to move things in Pakistan as well. And though any movement on the matter is compromised for the time being because of the lockdown, it will surely be given high priority once things start moving again. But, going forward, this exercise will have to be done with a very careful eye on the historically greater autonomy of provinces post-18th Constitutional Amendment or they will just end up disagreeing more than agreeing as usual.