Sales tax integration: FBR study seeks necessary constitutional amendments

ISLAMABAD: A study of the Federal Board of Revenue (FBR) on sales tax integration suggested necessary constitutional arrangements/amendments need to be carried out in order to streamline the integration process of sales tax on goods and services.

The paper has been jointly authored by FBR’s two seasoned officials Muhammad Imtiaz and Said Munaf. The paper is part of the FBR’s Biannual Review (2020-21).

The FBR paper said that any issues arising out of GST integration should be referred to the Policy Board and the Council of Common Interest (CCI), which is the constitutional body for resolution of disputes between the federation and the provinces.

There are disputes of jurisdiction between the federal government and the provinces, so there is need of a single tax collecting authority for sales tax to resolve the issues in hand.

For example, currently there is a dispute of taxation of toll manufacturers/restaurants between the FBR and the provinces as to whether it falls in the jurisdiction of the federal government or the provinces.

Furthermore, there is also jurisdiction issue regarding ST on wholesale and retail.

The FBR is of the view that these businesses are engaged in sales of goods and form an integral part of process of consumption of goods.

Hence, these are fully covered under Entry No 49 of Federal Legislative List (vi).

In order to resolve definitional and procedural issues and for harmonisation and optimal collection of sales tax, there should be a single sales tax collection authority for both goods and services operated through a fully integrated and automated single portal.

In this regard, in the last NFC meeting, six sub-groups have been formed.

For sub-group I, IV and VI representatives from the FBR will be included as members.

Hence, in the relevant sub-group, we should include the integration of sales tax as an agenda item to look into constitutional, definitional, and procedural issues in this regard.

Major challenge is that presently sales tax on services is collected by the provinces and integration could only be made through amendment into the constitution. There exist definitional and jurisdictional issues between the federal government and the provinces.

There are disputes between the federal government and the provincial governments on jurisdiction over certain areas such as restaurants, toll manufacturing, retailers, and wholesalers. There are also disputes regarding taxation of inter-provincial services based on origin and destination.

There are also long-outstanding issues relating to the input tax adjustment arising between the federal government and the provinces.

Through transformation the following benefits will be realised: Plugging of persistent tax gaps; uniform sales tax rates; no more double taxation; harmonisation of business processes and formats; fully automated integrated common and shared IT solution; seamless flow of credit; common national market; non-intrusive taxpayer’s database; month-to-month reconciliation; improved accessibility; increased tax-to-GDP ratio, and significantly reduced cost of collection, it added.

Copyright Business Recorder, 2021