Sindh government, the trailblazer in this regard, registered a growth of 17 percent with respect to collections under sales tax on services during the past seven months and a whopping 47 percent during January 2018 – from 6 billion rupees collected in January 2017 to 9.5 billion rupees collected in January 2018. Chairman Sindh Revenue Board (SRB) Khalid Mehmood claimed that the rise in collections was due to the recovery of outstanding arrears as well as widening the tax net to include those who had hitherto been avoiding paying the sales tax.
Business Recorder extends its appreciation to not only the SRB for steadily increasing collections under this tax but also to the Sindh government for insisting on collecting sales tax on services, as allowed under the constitution, even at a time when the PPP coalition government at the Centre had opposed this move. Previously, the Federal Board of Revenue (FBR) would collect the sales tax for all provinces for a fee, around 2 percent of total collected, and remit the money to the federal divisible pool after which it was distributed to the provinces according to the National Finance Commission (NFC) award. This implied that Sindh with the highest number of service providers in the country was routinely shortchanged in terms of receiving sales tax on services as the NFC formula was based on population which implied that Punjab would get more than its fair share of the total collected. The decision by the SRB, therefore, was a good one for the province and since the SRB was set up, it has not regretted this decision as this is the main source of revenue increase for the province. Punjab Revenue Authority and the Khyber Pakhtunkhwa followed suit though Balochistan’s Revenue Authority does not appear to be as proactive as in the other three provinces.
However, what is extremely disturbing is that rationalization of input/output tax adjustment between the FBR and the provincial revenue authorities/boards, an issue that erupted after the provinces decided to begin collecting sales tax on services themselves, unfortunately remains pending since 2013. That the issue was acknowledged by the tax authorities is reflected by the fact that a joint committee to explore the possibility of one portal/sales tax return for taxpayers registered with the FBR and the provinces with the objective of facilitating them and not compelling them to file multiple returns was actually set up after the three provincial authorities agreed to a single portal – a decision taken during the advisory FBR/provincial authority/boards meeting held to discuss several sales tax on services-related issues.
What is perhaps baffling though not surprising given the level of competence of the FBR is that this joint committee has not yet been convened and the result has been not only: (i) considerable inconvenience to the taxpayers as they continue to file multiple returns in multiple jurisdictions; but also (ii) there is the possibility of a claim of the same input tax from multiple jurisdictions due to lack of checks and balances on such adjustments.
FBR sources have told Business Recorder that FBR and SRB are in the process of reconciling data of cross input tax adjustment and that it will be fully reconciled in the near future, however, no date has been given which no doubt fuels scepticism given the failure to resolve the issue till now. Additionally, FBR also claimed that reconciliation of cross adjustment data with PRA for one year is almost complete and the process has begun with KPRA; however, Balochistan Revenue Authority has not yet entered into any agreement with the FBR probably because it has yet to achieve the level of operations that the other three provincial revenue authorities have achieved. One can only hope that this long pending issue is finally resolved on a priority basis.
