Levy of FED in VAT mode on services: FBR powers withdrawn after 18th Amendment

The powers of the Federal Board of Revenue to impose the Federal Excise Duty in Value Added Tax mode on services have been withdrawn after the 18th Amendment. Sources told Business Recorder here on Thursday that the issue of the imposition of the sales tax on services was discussed during the last meeting of the provincial finance secretaries on the imposition of sales tax on services in Budget 2011-12 besides other matters.
Tax authorities informed the provincial finance secretaries that the FBR has no legal authority to collect sales tax on services after the 18th Amendment. In every budget, the FBR has imposed FED in VAT mode on different services as revenue generation measure. However, now these powers of the FBR have been withdrawn to collect sales tax on services using the FED in VAT mode. The FBR has always used the FED in VAT mode as the most effective tool to impose sales tax on services to generate additional revenue and broaden the tax base.
According to sources, the issue of implementation of the reformed general sales tax (RGST) also came under discussion during the last meeting of the Provincial Finance Secretaries at the Finance Division. FBR Chairman Salman Siddiq reportedly said that after 18th Constitutional Amendment, Federal Government cannot tax services in FED mode however, existing framework remained under concentration.
One scenario was where lot of input tax adjustment could be involved. The FBR could help the provinces where input and out put adjustments are involved. Provinces may authorise the FBR in this regard. For any changes, the draft law would be provided to the provinces.
Officials of the Finance Ministry had advised that the FBR should draw up a strategy and share it with the provinces so that the system should not get disturbed. Whether RGST would be implemented or not, a way forward is required in the services sector, tax authorities added.
While speaking on the issue, Finance Secretary of Punjab said that despite their best efforts during a series of meetings, there was no breakthrough on the status of seven services. He was of the view that the matter may be placed before political leadership. He maintained that bill on RGST has already been tabled in the Provincial Assembly but it was not being pursued.
Provincial Finance Secretary of Khyber Pakhtunkhwa stated that draft law on GST has been prepared and would be ready to share it with other provinces. Provincial Finance Secretary of Sindh informed that they have moved ahead. He said certain decisions needed to be taken at political level and the bill is ready but some of their leaders were thinking to get it through ordinance, sources added.