Sindh rejects advance taxation proposal

Centre wants the provinces to collect 3% income tax from sales tax filers


Shahbaz Rana June 14, 2016
Federal Board of Revenue. PHOTO: AFP

ISLAMABAD: Sindh has refused to collect advance income tax from provincial sales tax filers on behalf of the federation, terming the proposed measure unconstitutional.

The Sindh Revenue Board’s (SRB) refusal can virtually derail the federal government’s plan to use the provincial revenue authorities to broaden the federal tax base.

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The rejection also jeopardises the Centre’s plan to collect Rs30 billion in additional taxes by levying 3% advance income tax on provincial sales tax filers from 2016-17 fiscal year. The provincial revenue board has excused itself from becoming a withholding agent of the federation, said Mushtaque Kazmi, SRB tax policy adviser, in a meeting of the Senate Standing Committee on Finance on Monday.

The stance highlights the province’s simmering row with the Centre, as the provincial government has also taken a strong exception to the federal government’s decision to postpone the new National Finance Commission award.

The federal government’s proposal called upon the provincial revenue authority not to accept return for sales tax until the 3% advance tax had been collected and deposited.

SRB Chairman Misri Ladhani had questioned how the federal law could override the provincial law, particularly when the Constitution allowed collecting sales tax on services.

The provincial revenue board has also won the support of the federal legislators, who have termed the proposal bizarre.

“The proposed bill will also fail the provincial revenue authorities,” said PML-N’s Senator Saud Majeed.

The Federal Board of Revenue (FBR), he said, already has a negative perception in the eyes of the taxpayers while the provincial revenue authorities do not have an image problem.

According to the FBR, about 24,580 people are filing sales tax returns with the provincial authorities. However, only 10,850 of them file income tax returns.

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The FBR said these sales tax filers had declared over Rs1 trillion in turnovers, on which the tax body wants to impose the 3% advance income tax.

The board’s adviser said its system was automated and had zero physical contact with taxpayers. He said if the FBR’s proposal was accepted, the revenue board officials would have to have contact taxpayers that might also result in corrupt practices.

Dr Kaiser Bengali, a renowned economist and expert in fiscal constitutional matters, points out that since the FBR has failed to broaden its tax base, it wants to pass the buck to the province.

However, FBR member policy Rehmatullah Wazir insisted the provinces could not rise against the federation and would have to accept the new tax.

Input adjustment

The Senate Standing Committee on Finance also found another proposal of the federal government bizarre that disallows input tax adjustment on sales tax on services paid by the provincial taxpayers.

The panel recommended the federal government delete this clause from the finance bill.

From July 1, the FBR will not pay sales tax refunds on taxes paid to provincial authorities. The FBR’s proposal will increase the cost for taxpayers, said Senator Saud Majeed.

Wazir said the SRB was not paying the Rs20 billion taxes the provincial authority collected on FBR’s behalf. The SRB officials contested the FBR’s claim.

The committee also did not accept the FBR’s logic of bringing an amendment into the law to address pure administrative issue.

Published in The Express Tribune, June 14th, 2016.

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