National fiscal pact: Provinces bound to get cabinets’ nod to collect GST on services

ISLAMABAD: To implement the National Fiscal Pact (NFP) under the IMF program, all four provinces are bound to get approval from their cabinets and provincial assemblies to collect General Sales Tax (GST) on all kinds of services and notify a negative list from July 1, 2025.

At the moment, the GST on services is collected by the provinces on the basis of a positive list. It will be replaced from the next budget, and GST on services will ensure transition from positive to negative list with effect from July 1, 2025.

The FBR will have to implement GST on services under the jurisdiction in Islamabad Capital Territory (ICT). The GST on goods is the domain of the Center, and on services is the domain of the provinces under the 1973 Constitutional arrangement.

Only those services will come out of the GST ambit which will be notified in the negative list from the next budget 2025-26, and all four provinces will have to formulate this negative list almost similar manner, except few services where the provincial government or legislatures prefer to differ from one province to another.

Top official sources confirmed to The News on Monday that all four provinces will have to implement six key conditions under the IMF program. First of all, the provinces will have to devise a mechanism for starting the collection of Agriculture Income Tax (AIT). The provinces had already amended the AIT regimes to fully align through necessary legislative changes with the Federal Personal Income Tax and Corporate Income tax regimes with the AIT.

“The provinces to ensure transition the services GST from a positive list to a negative list approach to combat tax evasion, to take effect from the start of FY 2025-26,” the National Fiscal Pact signed by the all provinces reads out.

One top official said that the provinces were ready to implement this fiscal pact. There are chances that except few dozen services, the GST on all services will be imposed from the next fiscal year.

Aim to collectively raise revenues from corporate tax in agriculture and GST on services combined with provincial tax effort in expanding additional areas of revenue collection. The provinces will have to develop, implement and collect revenue under a common approach to property taxation.

The provinces require to implement the necessary administrative reforms to narrow the tax compliance gap, including for the GST. The National Tax Council terms of reference will be expanded to include the design of the relevant tax measures including property tax and the necessary legal and administrative changes to implement them.