The prime minister had constituted a special committee to finalise all outstanding issues over tax collection within two weeks during a meeting held on July 28. This committee was being headed by the finance minister and comprised provincial finance secretaries among other tax experts.
The deadline has lapsed today and the finance minister has not called even a single meeting involving all stakeholders. It is learnt that he was on a 10-day leave to settle business matters in the United Arab Emirates and the United States. He returned on Sunday.
This is the second time the authorities have missed the deadline to resolve the dispute of collecting the tax on services between the Centre and the provinces. Sindh has taken a constitutional stance that the federal government does not have the right to collect the tax on behalf of the provinces.
“Enough meetings have been held to resolve the issue. It is a political matter and needs political deliberations,” declared Dr Kaiser Bengali, an expert on the Value Added Tax (VAT).
The government has again called a technical level meeting of the four provincial finance secretaries on Wednesday. The meeting is a waste of time, according to Dr Bengali. He also made it clear that that it is the responsibility of the finance ministry to sort out the differences.
Sindh and Punjab are in a deadlock over the distribution formula of the reformed sales tax on services. The government of Sindh has proposed that the collection be distributed on the basis of the formula agreed in the 7th National Finance Commission Award for the distribution of tax on goods.
This formula stipulates multiple criteria by virtue of which Punjab would get 50 per cent of the collection, Sindh 44 per cent, Khyber-Pakhtunkhwa five per cent and Balochistan one per cent.
On the issue of determining the services on which the tax will be collected by provinces, some behind the scenes progress has been reported but no concrete results have emerged as yet.
The government of Sindh has shown some flexibility on the issue by offering to surrender four main services. The main reason behind this being that these fall under the category of inter-provincial services. They include financial services, construction, advertising and franchises.
Sindh is still not ready to surrender collection of taxes from the telecom sector. It has proposed a mechanism through which the Federal Board of Revenue will offer input tax adjustments to the telecom sector on behalf of Sindh, which would reimburse it to the Board.
There still exists a dispute on the right of tax on a cellphone call among the parties but there is a possibility that the origin of the cellphone call may become the criterion.
Earlier, Pakistan had committed to the International Monetary Fund (IMF) that it would levy the VAT on goods and services by July 1. However, the VAT could not be introduced and instead it was decided that existing tax laws would be modified to get rid of politically motivated tax concessions within three months.
Finance ministry officials have said that the August 11 deadline was given to stakeholders keeping in mind the upcoming staff level talks with the IMF scheduled for August 23. The IMF has already linked the release of the next loan tranche under the $11.3 billion bailout package with an overhaul of the tax regime.
It has been learnt that Pakistan may request the IMF to extend the meeting date once again in the wake of the worst ever floods to hit the country, paralysing social and economic activities across three provinces.
Published in The Express Tribune, August 11th, 2010.
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