ISLAMABAD: The centre and provinces hold divergent views on establishment of National Tax Collection Agency for collection of Sales Tax on both goods and services under one umbrella, as the federal government considers it a mandate of NFC while the provinces insist it is the domain of CCI to sort out differences and evolve consensus.
However, both the centre and the federating units have agreed upon the pressing requirement of harmonizing the taxation system but the latter took the stance that single tax return could be devised but the single tax collection point would be difficult to implement. They argued that the European Union (EU) had even failed to implement a unified collection mechanism despite being advanced in technology.
Chairman Federal Board of Revenue Mohammad Jehanzeb Khan said establishment of National Tax Collection Agency could not be deliberated upon by the Council of Common Interest (CCI), as it was agenda of the National Finance Commission (NFC) to sort out taxation issues among the centre and provinces.
“The CCI has specific mandate and taxation issue is not part of it, as basically it deals with the federal legislative list part-II. The NFC is the appropriate forum and a special working group has already been established recently to ensure harmonization of tax collection among the centre and provinces,” Chairman FBR Mohammad Jehanzeb Khan said while addressing the inaugural session of day-long National Tax Conference organized by the Institute of Chartered Accountants here.
He said they would have to move towards the National Tax Collection Agency, as currently the FBR and provincial revenue authorities were using same portal of Pakistan Revenue Authority Limited (PRAL) for filing tax returns.
He cited the example of India where sales tax on goods is the domain of provinces and sales tax on services is the jurisdiction of the federal government but in Pakistan it was altogether different. They have made an arrangement so it could be done here in Pakistan as well, he added.
FBR’s Member IRS Policy Hamid Ateeq Sarwar said the National Tax Collection Agency on pattern of EU could be put in place in Pakistan.
Former finance minister and renowned economist Dr Hafeez A Pasha said the state was captured by elites as tax concession was costing Rs860 billion or 2.5 percent of GDP to the national exchequer. He also suggested National Integrated Value Added Tax on goods and services, as currently there is complete chaos as the taxpayers had to file returns with different tax authorities at federal and provincial levels.
He proposed imposition of green tax at the rate of 10 to 15 percent as excise duty as it should not be considered as revenue measures but aimed at discouraging those spreading pollution. He also proposed abolition of Gas Infrastructure Development Cess (GIDC) and slapping of 2 percent Water Resource Cess (WRC) to generate resources for construction of dams.
He also proposed to increase tax rate of maximum slab on annual income of Rs4.8 million instead of existing Rs8 million as the last government showed more generosity and jacked up tax limit from Rs0.4 million to Rs1.2 million in one go that had so far caused revenue loss of Rs42 billion.
Dr Pasha said there was good news as the FBR’s tax to GDP ratio had increased from 9.6 percent to 13 percent in last five years under the leadership of a chartered accountant as under the IMF program from 2013 to 2016 the tax rates were jacked up, GST on POL products raised that had even touched 51 percent on diesel and reliance was increased on withholding taxes.
He said if the government decided to opt for the IMF program then it would have to devise a roadmap for increasing the FBR’s share in tax to GDP ratio from 11.2 percent to 14 percent over next three years period. “It will be the biggest challenge for the government to bring a broad-based taxation system instead of relying upon jacking up tax rates only,” he added.
He advised the government to get out of relying upon withholding regime and said, “For God sake get out of it, as there are 23 areas from where the FBR collects 97 percent withholding tax collection.”
The FBR, he said, should abolish the remaining 3 percent areas in order to reduce burden of withholding agents on front of compliance.
Advisor to Sindh Revenue Board Syed Mushtaq Kazmi said harmonization was must but first of all there was need to remove certain misconceptions. He said sales tax on services was made part of provinces through 5th constitutional amendment enacted in 1976; however, it remained dormant but it was linked through Ordinance 2000 that the centre would collect it on behalf of the provinces.
Sindh, he said, remained the first to implement GST on services in the aftermath of 7th NFC Award and 18th Amendment. Then the Punjab established its Punjab Revenue Authority in 2012, KP in 2013 and Balochistan in 2015. Only three years passed after placing all provincial revenue authorities as Balochistan established its BRA in 2016, he added.
He said the FBR and four provincial revenue authorities held an important meeting last week at Lahore for harmonization of taxes.
Chairman Punjab Revenue Authority Javed Ahmed Khan said the FBR and four provincial revenue authorities sat together on March 11, 2019 at Lahore and efforts were underway to strike consensus for signing Memorandum of Understanding (MoU) next month till April 30 to harmonize taxation system.
At the moment, the taxpayers used to file five tax returns of GST on goods and services. He said he had suggested the PM to declare April 10 as Tax Day in Pakistan.
Chairman Baluchistan Revenue Authority (BRA) Misouri Ladhani said that coordination was required but there was need to develop a negative list, as all stakeholders would have to sort out legal issues for moving ahead.
“Single tax collection is not in favor of provinces but the single return is OK,” he added.
He said the provincial revenue authorities had made significant progress on tax collection front and cited an example that the FBR used to provide Rs87 crore as share of Balochistan in 2016 on account of GST on services but after establishment of BRA the tax collection touched Rs7.5 billion in 2017 and now they were going to collect Rs10 billion.
Director General Khyber Pakhtunkhwa Revenue Authority (KPR) Mohammad Tahir Aurkazai said there was no institutional framework and integrating taxation system would help to raise tax to GDP ratio.
Tax expert Shabir Zaidi said in Pakistan there were 11 to 12 commissions but every time it was done under the leadership of the then finance minister. There was no single tax commission which was formed with the approval of Parliament, he added.
Ashfaque Tola, renowned expert, said tax compliance would have to be improved to bring the desired changes in the taxation system.
He said the last tax reform commission report under chairmanship of Masood Naqvi was considered as the best report by the international experts of the World Bank but lack of implementation proved a major stumbling block for achieving the desired results.