Sindh reluctant to let Centre collect sales tax on services

Tax on services is a provincial subject, according to the constitution.

Shahbaz Rana August 22, 2011


The Sindh government is reluctant to allow the centre to collect sales tax on services because of the expected opposition in the provincial legislature, sources told The Express Tribune on Monday.

The provincial government expects strong resistance from the Sindh assembly, as any such authorisation requires the provincial assembly’s consent under the 18th constitutional amendment, they added.

They said that due to the ‘blackmailing’ of the federal bureaucracy, the Sindh government was ready to pass on its legal right of collecting taxes on five financial services to the federal government. However, they said, the decision could be politically bad.

“We may transfer powers to the federal government since we do not want to keep taxpayers suffering,” a senior member of the Sindh Revenue Board (SRB) said on condition of anonymity.

Currently, taxpayers, particularly banks and insurance companies, are in a fix whether to pay the federal excise duty to the Federal Board of Revenue (FBR) or sales tax to the provincial government.

The decision has to be taken before August 25, a deadline set for July by both tax-collecting authorities.

According to the constitution, the tax on services is a provincial subject. Keeping this in view, the Sindh government asked FBR to withdraw the federal excise duty on the services sector to pave the way for SRB to collect sales tax.

But FBR has linked the withdrawal of the federal excise duty with the consent letter from SRB, authorising the federal tax machinery to administer and collect taxes on services.

The law ministry has vetted the excise duty withdrawal notification, but it is pending with FBR, which is itself facing a credibility crisis over the disputed revenue collection figures.

Meanwhile, FBR Chairman Salman Siddique was not available for comments.

On the basis of last year’s written understanding, FBR is demanding the right to collect taxes from banks, insurance companies, construction companies, advertising and franchise.

According to the written understanding, FBR will deduct one per cent of the total collection as services charges. The Sindh government has called the written understanding a “dead horse” and wants to strike a new agreement, reflecting the aspirations of the provincial assembly.

In a bid to block any move to transfer a provincial matter to the federal government under political compulsions, the architects of the 18th amendment inserted a new article in the constitution.

According to Article 147 of the constitution, “The government of a province may entrust functions in relation to any matter to which the executive authority of the province extends, provided that the provincial government shall get the functions so entrusted ratified by the provincial assembly within sixty days.”

The provincial revenue official said that while succumbing to FBR’s “arm-twisting tactics,” SRB had prepared the summary to give up powers to FBR. He said that Sindh Chief Minister Syed Qaim Ali Shah will soon be briefed about the negative consequences of any such move. “The government may have to face the music while getting the decision approved in the provincial assembly,” he said.

He said that the nationalists had already shown concerns over giving up the hard-won constitutional right of the provinces to collect sales tax.

Published in The Express Tribune, August 23rd,  2011.

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