K-PRA sets ambitious target of Rs15b tax revenue

Revenue authority chief says they are looking at certain sectors to enhance figures

PESHAWAR: Haunted by litigation with long-lasting stay orders on tax collections in tow, the provincial revenue authority is hopeful of recovering as much as Rs30 billion in taxes in the coming years.

This was shared by the Khyber-Pakhtunkhwa Revenue Authority (K-PRA) Director General Nasir Khan on Wednesday while speaking to the media.



Nisar said that over the past five years, their tax base had increased nine-fold from 500 taxpayers in 2013 to 4,500 taxpayers currently. He expected this figure to rise to 6,000 by the end of the current fiscal year.

The authority, he said, had collected Rs10.9 billion in the last fiscal year and they had set an ambitious target of collecting Rs15 billion in the on-going fiscal year 2018-19.

However, the tax collection process is neither simple nor easy with a prevailing culture of not paying one’s taxes has firmly taken root in the province.

Nasir explained that the process of collecting sales tax on services is akin to a fiscal trial which starts with a simple notice served by the K-PRA and ends in the Supreme Court.

However, a major obstacle to the tax collection arose when the Peshawar High Court (PHC) issued stay orders to multiple petitioners on collecting sales tax on services. Some of these stay orders date back to 2013 and are still in effect.

“Everyone has given their own definition of the sales tax on services to the court to seek an exemption. From lawyers to restaurants to hospitals and government institutions who are liable to pay the tax, has gone to the court and has taken a stay,” Nasir lamented.

He pointed to how a noted restaurant, which was charging sales tax on its services from customers but was dithering from submitting them to the revenue authority.

Now, he said, the authority was preparing to conduct a complete audit of the restaurant.

Moreover, the K-PRA chief said that a well-known fast-food restaurant in Peshawar has decided to take the matter to the PHC where it has argued that sales tax on services do not apply to them since they do not provide any service, rather they are merely manufacturers.



“The amount involved in the litigations runs into billions,” he said, as he listed a number of noted private establishments, including hospitals in Hayatabad, who have challenged collection of sales tax on services.

Apart from individual companies, he said the PHC had imposed a blanket ban on collecting sales tax from the construction sector — where the K-PRA can potentially collect Rs2.11 billion even at the reduced rate of five per cent.

Apart from this, Nasir said that the Federal Board of Revenue (FBR) owes them Rs1.9 billion in input tax adjustments for the fiscal year 2016-17 and they expect more for 2017-18 for which the FBR has yet to share final figures with the authority.

“We will try our utmost to cross the Rs30 billion [revenue collection] figure in the next five years,” he hoped, adding that the since the authority’s inception in 2013-14, it had been dependent on the telecom sector for its revenue.

Nasir said that they have been working on rectifying this, pointing out that in 2016-17, telecom accounted for 59 per cent of all revenue collected by the K-PRA. This fell to 48 per cent in 2017-18, it is expected to drop further to around 40 per cent in the current fiscal year — provided the apex court revisits its direction of eliminating the tax on telecom.

“The Supreme Court’s directive to stop tax collection from telecom sector was a huge setback for us. We have prepared our case and are ready to plead it,” he said, adding that even as their dependence on the telecom sector was decreasing, it accounted for more than Rs0.5 billion in revenue every month.

Revenue potential

The K-PRA director general said that one of the areas which they were looking at to significantly boost sales tax recovery was the hospitality sector — which is set to benefit from the government’s renewed focus on tourism in the province.

Nasir said that at the moment they collect around Rs0.2 billion per year from hotels in the province. However, he noted that a recent World Bank survey had estimated that the industry had a potential of generating around Rs8 billion per year and this is something they were looking to cash in on.

He explained that instead of adopting a knee-jerk reaction to squeeze the fledgeling hospitality industry in the province, which, along with tourism, had been blighted by terrorism for over a decade, they will be gradually enhancing collection efforts in the sector. In this regard, he said that their target for 2018-19 was just Rs0.5 billion.

Moreover, to keep a check on retail outlets, especially in the food industry, he said that they will be introducing their Restaurants Invoice Monitoring System (RIMS) in selected restaurants with incentives for the public.

Likening the system to the one introduced in Punjab, he said that they were looking at bringing as many as 315 hotels into their system.

Zonal recovery

Dilating on their recovery strategy, the K-PRA chief said that they have divided the province into four revenue zones.

Zone-1 includes the Malakand Division — which comprises around 40 per cent of K-P’s territory but only 25 per cent of its population. It was previously a tax-free zone under the Provincially Administered Tribal Areas (Pata), but now the K-PRA is eyeing it as a potential source of substantial sales tax for services rendered for forestry, tourism, energy, mining, agriculture and livestock in which sales tax on services can be collected.

Zone-2 comprises central areas of the province rich in commercial activities, property, transport industry, main industrial estates, airport and also sees the levy of the tobacco cess. It comprises of the provincial capital of Peshawar, along with Mardan, Charsadda and Swabi. Peshawar alone accounts for around 70 per cent of the total urban immovable property tax while the rest of the province accounts for a mere 30 per cent.

The K-PRA director general added that Zone-4 includes the southern districts of the province who have good potential to generate revenue in the future especially in terms of transportation and the oil and gas sector.

Published in The Express Tribune, September 27^th, 2018.