Sindh refuses to budge on VAT issue

ISLAMABAD: President Asif Zardari has asked Prime Minister Yousaf Raza Gilani to hold a meeting with all four chief ministers to develop a consensus on the issue of Value Added Tax (VAT), which is set to replace the General Sales Tax (GST).

The International Monetary Fund (IMF) has made it a condition that Pakistan should impose VAT on goods and services from July 1 if it wants to receive IMF support in the next fiscal year. The tax on goods is a federal subject while the tax on services is a provincial one. But the federal government collects both the GST on goods and services and then reimburses the amount received on services to provinces after deducting collection charges.

Under the National Finance Commission (NFC) Award signed by the prime minister and the four chief ministers last year the collection of tax on services is also a provincial responsibility and it has been given cover under the 18th amendment as well. The federal government wants to collect VAT on both goods and services and then provide the provinces their due of the tax on services. But the province of Sindh does not agree. It wants to collect VAT on services on its own because it provides the lion’s share of the revenue generated nationally from taxes imposed on services. The federal government maintains that it wants to collect the tax because the provinces do not have the required collection machinery.

But Sindh remains adamant on its position. A meeting was held in the Presidency on Thursday presided over by President Asif Zardari and Prime Minister Yousuf Raza Gilani for a briefing on matters concerning VAT. The meeting was attended by Sindh Chief Minister Syed Qaim Ali Shah, Adviser to the PM on Finance Dr Abdul Hafeez Sheikh, Petroleum Minister Syed Naveed Qamar, Minister of State for Finance and Economic Affairs Hina Rabbani Khar, Secretary General to the President Salman Faruqui, and other officials. Representatives of federal government and the provincial Sindh government made presentations on the issues involved.

Sources maintain that the representatives of Sindh remained firm on their position that the province will collect VAT on services. Then President Zardari decided that the premier should soon call a meeting of the four chief ministers and develop a consensus on the issue.

Published in the Express Tribune, May 21st, 2010.