‘Ambiguity in 18th amendment creates grey areas in tax collection’

ISLAMABAD: Following the Eighteenth Constitutional Amendment, the government has not yet drafted a framework clearly outlining the federal and provincial tax authorities’ jurisdictions in taxing services sector.

The absence of framework is resulting in overlapping, double taxation and confusion among tax machineries and tax payers too.

After the passage of amendment, Sindh, Punjab and Khyber Pakhtunkhwa established their own tax authorities for collection of sales tax on services, but the absence of the government’s visible framework for outlining provincial jurisdictions for taxing a service sector has been causing issues including overlapping between federal and provincial tax authorities and also creating double taxation problems.

Representatives of business community and tax professionals who gathered here Wednesday gave this gist in a seminar on ‘Sales Tax on Services and Inter-Provincial Harmonisation’ which was organised by Islamabad Chamber of Commerce and Industry (ICCI) in collaboration with the Association of Chartered Certified Accountants (ACCA).

Although, it is provincial right to collect sales tax on services and which is enshrined in constitution, yet federal government is encroaching on the provincial rights of collections like sales tax on retail, wholesale and distribution services and sale tax on insurance and freight on imported goods. The federal government has also been collecting withholding tax on banking transactions and vehicle registration.

The federal government has also been collecting federal excise duty (FED) on some services which are already been taxed by provinces. The Federal Board of Revenue (FBR) is also taxing banking insurance, franchise services at federal level in spite the sales tax is being paid at provincial level.

Experts said, “Without cross provincial consensus and inter-provincial harmonization on tax collection of sales tax on services, there would be issues of double taxation and excessive administration burden both on the businesses and tax authorities.”

They observed that very high tax rates in Pakistan were promoting culture of tax evasion and government should focus on low tax rates for enhancing tax base and improving tax revenue of the country.

“Tax regime in Pakistan was very complicated with multiple tax rates as taxpayers were paying almost 10 different taxes in addition to many indirect taxes,” they said. Businessmen wanted to pay tax, but high taxes and difficult tax system were the main hurdles in better tax compliance.

Government should simplify tax system and introduce single-digit sales tax rate in order to attract more taxpayers into the tax net. ICCI President Atif Ikram Sheikh said that positive changes were happening gradually in the tax system and stressed that government should make tax policies in consultation with trade bodies by addressing their key concerns on tax matters.

Chas Roy-Chowdhury, ACCA’s Head of Global Taxation, Arif Masud Mirza, Regional Head of Policy MENASA ACCA, Hammad Siddiqui, Acting Country Director Centre for International Private Enterprise (CIPE), Muhammad Yasir, Technical Advisor Tax Compliance FBR and others also addressed the event and called for simplified tax system.

They stressed that the Small and medium-sized Enterprises (SMEs) should also focus on improving their financial management skills to deal with tax matters more effectively. At the same time, educating taxpayers including SMEs on tax compliance was a key to promote tax culture and improve tax revenue.

It was also stressed that trade bodies across the country should also play their role for improving tax compliance and minimizing informal economy.