Tax either goods or services, say builders

Industry, revenue officials meet to resolve sales tax dispute.

KARACHI:

Builders and developers have argued that tax should either be on goods or services and the imposition of sales tax on Sindh’s construction industry has handicapped it and halted dozens of projects.

“Stakeholders should be involved in decision-making process. About 40 to 45 projects have been stopped because of the tax,” said Association of Builders and Developers (ABAD) Chairman Mohsin Sheikhani.

He was speaking at a seminar on sales tax organised by Daily Express and ABAD at Avari hotel, where the builders and members of revenue and investment boards gathered to resolve the dispute over the tax.

Sheikhani said most people, in a bid to escape the tax net, were now using the power of attorney to get ownership of land, adding this had left government’s efforts to widen the tax net futile.

The builders and developers argue that they already pay tax on goods purchased for construction and they are not service providers.

They say that they purchase land with title, build and sell with title of 99 years, so the question of service does not arise. Nowhere in the world is land taxable under sales tax, they say.

However, according to tax officials, Chapter 98 of Customs Act categorically states that construction comes under services and can be taxed as such.

“How can you tax per square foot and not the value. If I have a property in Islamabad that is the same size as one in Surjani, how can they be of the same value,” asked ABAD Regional Chairman Saleem Qasim Patel.

Reputed economist and member of National Finance Commission Kaiser Bengali, however, said everyone could try to avoid paying taxes, pointing out that schools could say they should not pay because they were providing welfare services and agriculturalists could do so by saying they already paid tax on water.

He said all wanted to save their business, but did not consider the economy on the macro level. “You make constructions but don’t build roads or the sewerage system, who is going to pay for that? If you don’t pay your taxes then you won’t have any roads or sewerage systems and no one is going to buy those plots anyway.”

Bengali said builders did not respond to the public need. Citing an example, he pointed to 200,000 empty plots in Karachi, but the builders had built DHA City and Naya Nazimabad and other housing schemes on the outskirts of the city that were not serving the needs of people living in the city.

Despite the disagreements, participants of the seminar said they would continue to meet to come to an amicable solution.

Published in The Express Tribune, April 14^th, 2012.