In accordance with an International Monetary Fund (IMF) agreement for a new $7 billion credit line, Pakistan’s provinces have agreed to expand the scope of sales tax by adding a broader range of services from the next fiscal year.
According to a news report, this expansion involves transitioning from a positive to a negative list approach, where services not explicitly exempted will be taxed. The shift to a negative list for services will align with the federal system’s 6th Schedule, detailing exempt goods and is anticipated to increase tax collection from services.
The provincial and federal efforts to adopt a negative list are part of an overarching goal to harmonise Pakistan’s sales tax system, although challenges remain in aligning the current positive lists.
Currently, provincial sales taxes apply only to specific services, known as the positive list, with various tax rates, while other services remain exempt.
Conversely, federal sales tax generally applies to all goods unless specifically exempt under certain provisions of the Sales Tax Act 1990.
Revenue collection data from the fiscal year 2024 shows that the Sindh Revenue Authority collected Rs 236.85 billion, the Punjab Revenue Authority gathered Rs 239 billion, and the Khyber Pakhtunkhwa Revenue Authority amassed Rs 41.77 billion. Meanwhile, Balochistan’s figures, expected to be lower, were not yet disclosed.
Experts suggest that a new classification code for services, devoid of existing flaws, is crucial to avoid further disputes and facilitate the transition. Ongoing consultations with stakeholders and consistent inter-provincial discussions are deemed essential to ensure a smooth and dispute-free implementation of the new tax system.
