The federal government recently gave instructions that have come under some criticism: verbal instructions to the State Bank of Pakistan (SBP) to direct National Bank of Pakistan not to honour government cheques on 30 June, to the Accountant General of Pakistan (AGP) to stop clearance of government cheques, and withdrawal of 2 billion rupees from the accounts of the Punjab Revenue Authority (PRA) by the Federal Board of Revenue (FBR) without informing it first.
The federal and Punjab governments issued cheques for ongoing projects in May - the previous assemblies ended their tenure on 31 May 2018 – for payments in June when the prerogative to disburse funds for any specific project(s) would have been the Caretakers. Thus the instructions issued to the SBP and AGP are valid and can be supported as it was not the prerogative of the Punjab or federal government to disburse funds earmarked for release in June a month earlier. The Ministry of Planning, Development and Reforms has expressed extreme reservations at these actions by the caretakers and argued that “this would be amounting to non-compliance of constitutional provisions relating to the annual budget and its operation.” However, one would hope that the ministry would revisit its stance in light of the fact that the previous government did not follow procedure.
Ever since the provinces opted to set up their own tax collecting authorities dedicated to collecting sales tax on services, as allowed under the constitution, the FBR has witnessed lower revenue collections as previously it had charged a fee of around 2 percent for the collection on behalf of the provinces. And what motivated the trail blazer, Sindh Revenue Board (SRB), to insist on collecting sales tax on services rather than allow the FBR to collect on its behalf was the fact that while FBR collections are credited to the Divisible Pool with Sindh’s share limited to what was determined by the National Finance Commission award whereas collections by the SRB would be credited entirely to the provincial treasury.
Sindh had refused to allow FBR to collect on its behalf at a time when the party formed the government in Sindh as well as in the centre and the then president Asif Ali Zardari had unsuccessfully pressured the Sindh government to accede to FBR’s demand to collect on its behalf. Soon thereafter, Punjab and Khyber Pakhtunkhwa established their revenue authorities for collecting sales tax on services. The performance of provincial revenue authorities has been remarkable though there are hitches between the FBR and these provincial authorities as regards reconciliation of accounts because of input-output adjustments of sales tax on goods and services that have remained unresolved thus far. Such difficulties also exist between the provinces themselves because of input and output adjustment of sales tax on services across provincial jurisdictions. It is lamentable till date there has been no structural arrangement/forum for resolution of these accounting irritants between the FBR and the provinces and the responsibility for this lapse lies more at the doorstep of the federal government.
Provincial revenue boards and the FBR therefore need to periodically meet for input-output tax adjustments whereby there is an agreement on the amount payable between the provincial and federal tax collecting authorities. However, FBR’s decision to withdraw the 2 billion rupees from PRA accounts without first rationalizing its claims smacks of some autocratic behaviour that has become the hallmark of FBR, nay the federal government’s. However, the FBR, when asked, claimed that NBP erroneously credited 2 billion rupees to its account though the Punjab government pointed out that the NBP’s reversal of cheques is against banking rules.
