Sindh may steamroll Vat plans

ISLAMABAD: Sindh is adamantly refusing to give up its right of levying and collecting consumption tax on services while other provinces are dithering on the issue.

The Sindh government told the federal government that it would not give up its right to collect taxes in Sindh in favour of the federation “no matter what”. This stance has prompted Islamabad to summon the Sindh Chief Minister Qaim Ali Shah today to resolve the dispute. The deadlock may be the start of a provincial backlash to the Vat, say observers.

This has p u s h e d t h e federal government to immediately take the provincial leadership into confidence so as not to put its budget under a cloud. Qaim Ali Shah’s visit is seen as a last ditch effort to implement an integrated Vat across the country. But Sindh is not impressed. “The Value added tax on services is a provincial subject, guaranteed in the s e v - enth National Finance Commission Award, and the provincial government would not surrender its right at any cost,” said the Sindh Secretary for Finance, Fazalullah Pechuho in a meeting of the National Assembly Standing Committee on Finance and Revenue.

“The federation is demanding what is Sindh’s constitutional right and if it wants to take away that right it can amend the constitution,” added Pechuho. Sindh’s persistent stance is creating serious problems for the federal government, as it has to implement new integrated consumption tax on goods and service from the new financial year by replacing the General Sales Tax on goods. “If Sindh is not on board then I will ask the government to kill the Vat,” said the Chairman Federal Board of Revenue, Sohail Ahmad.

If any province, particularly Sindh, will not voluntarily pass the bill and give right of collection to the FBR then the Vat system will not work, he added. Aftab Shahban Mirani of PPP also told the committee that the CM Sindh called him on the telephone and clearly conveyed his message that the province would not allow the Center for levying and collecting Vat on services. Ruling party MNA Nafeesa Shah was of the opinion that in principle she would support the imposition of the Vat keeping in view the revenue generation requirement.

Chairman FBR told the National Assembly that under the proposed Vat bill, only exports would be zero-rated while local sales of five exportoriented sectors would be taxed at the rate of 15 per cent. He said on the sales of garments, leather, sports goods, carpets and surgical equipments 15 per cent tax would be charged. The representatives of the industry said that until the government improves its tax refund system, the implementation of the Vat should be delayed.

“An implementation of the Vat from July 1 would result in a Rs80 billion cash-crunch for the industry due to delayed refunds”, said Shakeel Ahmad of Federation of Pakistan Chambers of Commerce and Industry. Other provinces have yet to make an issue out of the federal government collecting taxes, but Punjab finance minister Tanvir Ashraf Kaira has said that “we would collect Vat but first the federal government has to finalise it.”