Sindh gives in on VAT

KARACHI: The Sindh government finally surrendered before the federal government on the value added tax (VAT) issue, despite the bold assertions made a day earlier at the assembly session.

The federal government succeeded in acquiring control of the collection of sales taxes on services. According to the agreement inked between the federal government and the Sindh government, the former will collect the VAT on financial services, advertising, construction and franchising.

Once all the taxes have been collected, 50 per cent of the revenue generated will be given back to the Sindh government while the rest will be distributed according to the National Finance Commission criterion agreed to earlier.

Meanwhile, the Sindh government will collect the tax on telecommunications, which is expected to come around Rs26 billion, and travel.

Three months ago the federal government had directed all provincial assemblies to pass a bill regarding the VAT in their respective assemblies. However, Sindh had vehemently opposed the decision while the rest of the provinces had acquiesced.

Sindh Chief Minister Syed Qaim Ali Shah announced at several different occasions that the collection of taxes on services should be carried out by the province and if the federal government disagrees, it will be violating the Constitution of Pakistan.

On May 3, the Sindh Assembly passed a bill to establish the Sindh Revenue Board. The chief minister said that the board will work according to the pattern of the Central Board Revenue and will collect all taxes on its own.

All coalition partners and members of the Opposition appreciated the government’s stance.

Later it was decided that a bill regarding sales taxes on services will be passed by the assembly during Saturday’s session. All arrangements were made, but in a surprise move following the agreement, the assembly session was adjourned without tabling any bill.

Talking to The Express Tribune, MPA Nusrat Saher Abbasi of the Pakistan Muslim League-Functional (PML-F) said that all the members of the assembly’s standing committee on finance had rejected the VAT and they were taken into confidence that VAT would not be imposed. She said the PML-F would continue opposing it and that the issue will be taken up in the next session. When contacted many MPAs and ministers of the PPP reserved their comments.

Sardar Ahmed, Parliamentary leader of the MQM in the Sindh Assembly, said that the MQM will oppose the federal government’s stand on collecting the tax on services.

“Our stand is that it will be a violation of the constitution and no tax should be collected by the federal government,” he said

Regarding the bill on sales taxes on services, he said they were told that it was to be passed on Saturday, but the government did not move the bill and the session was prorogued. “We will discuss this issue with the CM before the budget is passed,” he said.

Published in the Express Tribune, June 6^th, 2010.