NFC suggested assigning collection of sales tax on goods to provinces

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ISLAMABAD: In a move to harmonize tax system the National Finance Commission (NFC) has been suggested to assign collection of sales tax on goods to provinces as the same tax has been problematic in terms of transaction time and ease of doing business.

In the recommendations made to sub group IV of the NFC-2019, which has been tasked to identify measures for simplifying tax procedures and payment systems to facilitate businesses, it has been suggested that the collection of the sales tax on goods may be assigned to the provinces.

According to available documents, the shifting of tax collection mandate will enhance the efficiency of the sales tax collection by devolving it to a lower tier and integrating the collection of both sales tax on goods and services.

Supporting the idea, officials claim that sales tax transaction time is lower at provincial level. “Proposed integration will reduce transaction time as well as transaction costs and improve the ranking of Pakistan in ease of doing business,” the officials said.

Since the sales tax on goods is around 60 per cent of total collection of federal government, the center has been resisting devolving this tax to provinces.

Earlier last month the Federal Board of Revenue (FBR) and provincial revenue authorities had agreed on the harmonisation of taxes, facilitation of taxpayers and early resolution of sales tax collection on the third category of disputed services and goods. During a conference in Islamabad the heads of the provincial revenue boards developed consensus on the harmonisation of taxes.

However during the same conference, differing views also emerged 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 upon it being the  domain of Council of Common Interests (CCI) to sort out differences and evolving consensus.

Chairman FBR and Secretary Revenue Division Mohammad Jehanzeb Khan had informed the conference that taxation is not the mandate of the CCI and that taxation issues need to be discussed at the level of NFC.

As per the documents, the NFC has also been suggested to reduce the number of transactions both at Federal and Provincial levels through greater automation and harmonisation.

However, according to sources, consensus could not developed during the meeting of the sub group of NFC on the sales tax issue. The NFC body has however decided to simplify tax structure across federal and provincial taxes with the aim achieving goals of equity and efficiency.

As suggested by member NFC Punjab, it was decided that a committee be formed to study and make recommendations on number of issues which included improving Pakistan’s ease of doing business ranking progressively over the next five years.

The proposed committee, officials say, would also look into implementation on recommendations suggested by previous tax reform commissions. The committee would also be making its study and recommendations on effectively using Pakistan Revenue Authority Limited (PRAL) and Sales Tax Real-time Invoice Verification (STRIVe) for harmonisation of payment systems for individuals as well as corporate entities.

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