The federation should not encroach upon provincial jurisdiction as enshrined in the Constitution
KARACHI: I have read with great interest Dr Pervez Tahir’s article titled, “GST and jurisdictions” (July 1). The writer appears to be an advocate for a single stage taxation system of sales tax in Pakistan — a system also advocated by the Tax Reform Commission of the Federal Board of Revenue (FBR).
The 18th Amendment and Article 8 of the 7th National Finance Commission (NFC) Award give the provinces powers to levy and collect sales tax on services. Prior to these, the provincial sales tax on services was levied by the respective provinces but the collection functions were assigned to the FBR. No input disputes or cross-adjustment issues were raised by the FBR or by the federal government during the period it collected the provincial sales tax on services. However, the FBR failed to collect provincial sales tax effectively or efficiently, resulting in meagre transfers of sales tax on services to the respective provinces. It is only when the provinces displayed that they could collect a much higher amount of sales tax on services, even at reduced tax rates that the centre and the FBR started creating hurdles, which first intensified in 2013 when the provisions of section 2 (22A) of the Sales Tax Act of 1990 were amended and again in 2016, when the provisions of section 2 (14) of the said Act has been omitted. These actions on the part of the federal government and the FBR show that they have not accepted the provisions of the 18th Amendment and the 7th NFC Award wholeheartedly. There is nothing wrong with the value-added tax (VAT) concept of sales taxation, which is practised all over the world except in the US and India. What is wrong is the mindset of the people in Islamabad who are not willing to mentally reconcile with the constitutional and NFC provisions granting some provincial legislative authority in matters of levying and collection of sales tax on services.
The learned writer has incorrectly stated that input tax adjustment is a sore issue between provincial governments. The Sindh High Court has held the levy of federal excise duty on services to be ultra vires the Constitution and only provincial sales tax can be levied on any service. The disadvantage of the conventional single stage sales tax system outweighs its possible advantages. This is why the VAT system of sales taxation is preferred worldwide, except in a few countries. At the time of independence, sales tax was a provincial subject and was borrowed by the federation for one year only. There is a justifiable case now to revert the entire sales taxation, whether on goods or on services, to the provinces as they have demonstrated the capacity to collect this tax more efficiently and effectively.
Every citizen should realise that the provinces, joined together, make the federation. The federation should not encroach upon provincial jurisdiction as enshrined in the Constitution. Indirect methods of subverting or circumventing constitutional provisions will result in problems and anxieties among citizens, taxpayers and the provinces. The federation must consult the provinces before making any legislative or procedural changes that affect the rights and autonomy of the provinces.
Aftab Saeed Sohail
Published in The Express Tribune, July 4th, 2016.
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