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ISLAMABAD: The National Tax Council (NTC), Monday, fully endorsed the viewpoint of provinces over the common rules in place of supply (Place of Supply Rules) resolving a major dispute between the Federation and provinces on the collection of sales tax on services.

Sources told Business Recorder here on Monday that the important decision on the agreement of common Place of Supply Rules took place during the NTC meeting chaired by Finance Minister Ishaq Dar at the Ministry of Finance.

Finance Minister Punjab Muhammad Mohsin Leghari, Minister of State for Finance and Revenue Dr Aisha Ghous Pasha, SAPM on Finance Tariq Bajwa, SAPM on Revenue Tariq Mehmood Pasha, secretary finance, the FBR chairman, provincial finance secretaries and other senior officers of the Finance Division attended the meeting.

Provinces presented the joint report on the common Place of Supply Rules before the provinces.

The NTC endorsed the joint report of provinces on the common Place of Supply Rules and following approval of the NTC, provinces will jointly frame the rules vetted by their respective law divisions.

All provinces will notify their respective Place of Supply Rules in the light of uniform agreed rules.

Sales tax harmonization: Centre, provinces agree on key definitions

The FBR would also be required to issue Place of Supply Rules for the territorial jurisdiction of Islamabad Capital Territory.

According to the sources, tax authorities of the FBR objected to the possible litigation in courts on the issue of common rules in place of supply (Place of Supply Rules).

To resolve disputes between the Federation and provinces, the finance minister directed the FBR to agree on the common rules in place of supply for the facilitation of the taxpayers and service providers and the issue of litigation would be legally tackled if took place in future.

Sources said that a key aspect in harmonising Pakistan’s sales tax was the need to distinguish the taxing powers of the federal government vis-à-vis that of the provinces, and further between the provinces, themselves.

Under the Constitution, the sales tax base is divided between the supply of goods (taxable by the federal government) and supply of services (taxable by the provinces), and hence, it is very important to define as unambiguously as possible the definition of what constitutes, a good, and what constitutes, a service.

Moreover, in the case of supply of services, as provinces have the right to tax the supply of services occurring within their province, when services are provided across different provinces, clear “Place of Supply Rules” are needed to give the taxing power to the relevant province.

Sources said the harmonisation also required data sharing, clearing house to allow cross-agency tax credits, common return and rules. Further, harmonisation requires the smooth functioning of the NTC, which has been setup to aid in such efforts.

The meeting reviewed the progress on the decisions of the last meetings of the NTC on harmonisation of GST across the country. The finance minister shared that in order to have ease of doing business, harmonisation of GST is important. Further, GST harmonisation will be a major step towards completion of policy actions under the World Bank’s RISE programme. The participants shared their opinions on the harmonisation of GST.

The FBR chairman and provincial stakeholders extended their consensus to proceed ahead in the spirit of greater national interest for harmonisation of GST under the umbrella of the NTC.

In conclusion, Finance Minister Senator Ishaq Dar appreciated the stakeholders for building consensus and settlement of the decision regarding harmonisation of GST for ease of doing business.

Copyright Business Recorder, 2022

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