Sindh going for a tax adventure: FBR

By Muhammad Toori

KARACHI: The Federal Board of Revenue said on Monday that though provinces were incapable of collecting taxes, the Sindh government wanted to go for a ‘taxadventure’. On the contrary, other provinces realising the futility of such a move have surrendered their respective demands of collecting GST.
A senior FBR official told Business Day that all the provinces would take three years to build capacity for collecting sales taxes and for the time being, on Sindh’s demand, only ‘sales tax on services’ was given to the provincial government.
The Sindh government is establishing Sindh Revenue Services to collect general sales tax (GST) on services. This service would work as an independent organisation, having capacity to undertake modern IT-based tax collection system with qualified staff.
Initially, the Sindh Revenue Services would collect GST on services, whereas it would collect other taxes as well afterwards.
The Finance Ministry is continuously trying to convince the Sindh government for the collection of value added tax (VAT) on services by the federal government for the implementation of a broad-based integrated VAT Law from July 2010. This issue has been discussed in the meeting of revenue advisory council as well.
The provinces were entitled to collect the sales tax according to NFC, however, since the provinces have been incapable of tax collection so far, the federal government is reluctant to give this responsibility to the provincial authorities at least for the coming fiscal year.
The official said, “We expect the National Assembly to pass this law by April this year. Then the process of approval in the respective provincial assemblies will start, which is a long process ahead of us.”
“We are trying to convince the Sindh government to allow the federation to collect VAT on services till the provincial government was able to develop the required infrastructure and enough capacity to effectively collect the levy on services,” the sources added.
Therefore, the federal government would collect the VAT on the behalf of provinces and transfer the due share to the provincial governments. Once the provinces would have the necessary capacity to collect, implement and monitor the VAT, they will be entitled to do so. “A uniform system of implementation of VAT is necessary in all four provinces, however, if one province would not agree over the procedure, it would hinder implementation VAT and change in new tax law would be required”, he added.
The purpose of the provincial VAT-2010 is to introduce and implement a broad-based tax on sales and purchases of services to be integrated with the federal taxes and terminal taxes on goods, taxes on their railways, sea or air fares and freights, in which each tax will be cross-credited against the other to form a broad-based tax on consumption