ISLAMABAD: The Sindh government has expressed its displeasure over federal government’s failure to call a meeting to discuss issues related to tax collection. The provincial government has demanded that a meeting be convened as soon as possible to resolve all the issues pertaining to collection of taxes.
Official sources disclosed that the Sindh government has written a letter to Finance Secretary Salman Siddique in protest against the unwarranted delay in calling a meeting to resolve the dispute of collecting tax on services.
“The Sindh government is concerned over a delay in convening a meeting,” read the letter written by the Adviser to Chief Minister Sindh on Planning and Development, Dr Kaiser Bengali.
“Consultation with the provinces on the issue of reforming the GST is an ongoing process. We discussed this issue in detail with the provincial secretaries in a meeting held on Friday,” said Secretary Finance Salman Siddique.
The finance ministry held a meeting to discuss the reformed GST on Friday. During the meeting, the FBR demanded that all provinces should be taken on board to resolve pending issues about collection of tax on services. The ministry indicated that it would try to convene a meeting next week.
The Sindh government has complained that there had been no progress on the issue of implementing the reformed General Sales Tax (GST). The federal government intends to introduce the reformed GST by October in place of existing sales tax structure. The government also wants to levy tax on purchase and sale of services, in addition to withdrawing tax exemptions on goods.
Pakistan has assured the International Monetary Fund that it will overhaul the tax system in order to increase the tax-to-GDP ratio, which is at 8.9 per cent and the lowest in the region. The government is betting on the reformed GST but so far it has not taken any major initiative, which may indicate that the government would be unable to address provincial concerns over collecting tax on services that is constitutionally a provincial subject.
The Sindh government has stated that it would not surrender all the service taxes to the federation, as tax on services is a provincial matter. However, it has proposed that the federal government can collect taxes on four services including advertising, franchises, construction and financial services. They insist that the federal government hand over all of the remaining ones, particularly the ones on telecommunications sector to the provinces.
The Sindh government wrote in the letter that it was the prerogative of the provincial government to legislate and collect the tax on services but the provincial government was not doing that in order to avoid chaos.
The IMF has already indicated that it will only approve of the second last tranche of over $1.3 billion under the $11.3 billion bailout programme after Pakistan has implement the VAT or the Reformed GST from October 1. The government could not fulfil its promise of levying the VAT from July 1.
However, despite increasing pressure from the all donor agencies the federal government could not hold a single meeting with the provinces to win their confidence. An official of the provincial finance department said it seemed that the federal government was not serious in implementing the reformed GST. He said federal Finance Minister Hafeez Shaikh has not convened a single meeting with the Sindh government to resolve the issue.
The official said sometimes the tax related issues were informally sorted out between the Sindh representative and a tax consultant of the Finance Ministry. “Until and unless the federal government converts the understanding into decision, the exercise remains futile”.
The Federation’s stance is that the collection on goods and services cannot be separated under the proposed value added tax or the reformed GST but according to an informal understanding the input tax adjustments cannot be separated but the collection can be separated.
“The government has to take a decision as time is running out. We have deferred the matter of levying tax on services for three months not for an indefinite time period”, said the official.
The key services which may be taxed are construction and land improvement, trade, wholesale, trade retail, hotels and restaurants, railway, road, air, other and storage, communication, central monetary authority, scheduled and cooperative banks, other credit institutions, insurance, real estate services, ownership and dwellings, business services, public administration and defence, social and cultural services. The government is already taxing the telecom and banking services in the federal excise duty mode.
Published in The Express Tribune, July 24th, 2010.
COMMENTS
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ