Karachi: The Sindh government has demanded that the federal authorities transfer the responsibility of collecting sales tax on goods to the provinces.
The demand came in the form of a draft report titled ‘Devolved v/s Integrated Tax Structure: Evaluation of the Tax Collection Framework in Pakistan’. The study was assigned to Sindh by a subcommittee of the 9th National Finance Commission (NFC) on April 28.
The provincial finance department convened a high-level meeting on Monday to deliberate over the pros and cons of the recommendations listed in the report in order to “address the grievances of the provinces with regard to their retrenched share from the NFC”.
The meeting – which was attended by relevant government officials from all four provinces – was told that Sindh had prepared a draft on the assignment of tasks and despatched it to the federal and provincial governments for feedback.
The report highlighted issues related to collection of general sales tax on goods by the provinces instead of the federal government, and sales tax on services being collected by the federal government by declaring them as goods.
The draft also decried “the Federal Board of Revenue’s encroachment upon provincial taxes, including withholding taxes on banking transactions, telecommunication services, etc.”
The report recommended that the provinces be allowed to collect sales tax on goods, adding that the federal government could distribute the amount as per the spirit of the NFC award after the provinces forward the sum to the centre.
Other recommendations stressed on the capacity and efficiency of the provinces for meeting the prerequisites with regard to collection of assorted taxes.
It has been proposed that since the experience of the Sindh Revenue Board, the Punjab Revenue Authority and the Khyber-Pakhtunkhwa Revenue Authority showed that the provinces were capable of managing cross-border transactions of goods and services, the federal government should “stop encroaching upon provincial taxes by imposing withholding taxes”.
Sindh believes these federal measures have “severely affected the provincial motor vehicle tax, sales tax on telecommunication services and urban immovable property tax”.
The provincial government also believes the levy and collection of sales tax at the wholesale and retail stages and the distribution of energies like gas and electricity should be devolved to the provinces. “The federal system of excise and sales taxation on the basis of retail prices should be discontinued forthwith.”
Punjab and K-P expressed their support to the recommendation of transferring the responsibility of collection of sales tax on goods to the provinces, as “the provinces are in a better position to collect them along with sales tax on services”. Balochistan, however, would convey its position in the next meeting.
The proposals are expected to bring the sales tax collection regime under one authority as well as increase revenues.
